US Fed tapers another $10 Billion to $65 Billion a month.

Ben Bernanke released his last monetary policy statement Wednesday before he retires at the end of the month and he left the market with no doubt on what the US Fed ultimately wants to do. The US Federal Reserve Committee unanimously voted at its meeting this week to reduce the stimulus program by another $10 Billion in February bringing the monthly stimulus program back to $65 Billion. In December the Fed announced it would reduce the stimulus by $10 Billion and Wednesday's decision to reduce this by another $10 Billion, making the total reduction now $20 Billion sends a clear message to the market the Fed is now fully committed to winding back the entire stimulus from $85 Billion as it sees the US economy steadily becoming more self sufficient.

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LTG GOLDROCK REVIEWS Forex News January 2014

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The Aussie Dollar makes a new low.

The weaker than expected manufacturing data out of China helped push the Aussie Dollar down to the level we've had posted in this report. In fact the price pushed below the level overnight to create another new low as US stock and commodity markets dropped. The AUDUSD price is now sitting just above the level mentioned this week and there is an updated list of numbers today that I encourage you to review.

What the sellers of the Aussie really need is for a Daily candle to close sharply below the level we've discussed and once that happens 0.85c will be in trader’s sights.

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Will the stock market correct in 2014 and how will it likely affect the USD?

The short answer is yes I think it will. The longer answer of when and by how much I simply don't know. But there are a few things that seem pretty obvious to me and we should continue to keep an eye on them. Here is something I have noticed already in 2014 and I think is fairly predictable in the first half of this year.

• Every time the US 10 Year Treasury Yield goes close to or above 3% stock markets pull back sharply and the US Dollar surges.
• Every time the US 10 Year Treasury Yield goes down stock markets in the USA move higher and the US Dollar retraces.

Traditionally when global stock markets fall or correct themselves this usually benefits the US Dollar as it becomes a safety asset the market likes to buy in times of uncertainty. Traders simply convert the stocks they held into US Dollars or more to the point US Treasuries (US Bonds) and this in turn appreciates the US Dollar.

Right now we have stock markets globally that overall had a stellar 2013 and at some point the natural cyclical nature of the market is such that it will pull back. Provided the stock market has an orderly pull back and is not pulling back because of poor US economic growth and data figures I think one of the "trades of the year" could still be the emergence of the US Dollar again but this will be 100% dependent on continued economic prosperity, better jobs numbers and stronger growth and company earnings.

As I said a correction or pull back on the stock market is a natural and healthy thing and at some point this will happen and if it does over the coming few months check to see what % yield the US 10 Year Treasury is and if it’s close to or above 3%. If so the US Dollar will likely be gaining in value against the Aussie, Euro and Yen.

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No surprises from China as expected.

China's December quarter GDP number came in pretty much in line with expectation at 7.7%. Most leading economist were predicting a number of around 7.6% so when 7.7% printed on screens it gave no reason for traders to go berserk and buy or short a currency post the news.

If you follow this LTG GoldRock Insider report throughout the year you will notice that most of the China data comes in bang in line with expectation and rarely do we see anything majorly out of whack. Yes, I too think the numbers that come out of China could be just what the government wants the market to hear however there is no point trying to guess if the numbers are fudged or not, the bottom line is the market trades the data regardless.

LTG GoldRock Fundamental Analysis of the Week Ahead

China's fourth quarter 2013 GDP number at 1.00pm today will be the headline news through the Asian trading session Monday. There is a small TD Securities inflation number for Australia at 10.30am but it's Wednesday's official Australian Inflation report the market will really gravitate to regarding Aussie inflation and not the private inflation reading this morning.

China's growth is critically important to the pricing level of commodities and of course the Australian dollar. If the 4th quarter China GDP number today shows any signs of weakness in the Chinese economy the Aussie Dollar is going to come under selling pressure once again. As I pointed out last week once the Aussie Dollar vs the US Dollar closed below 0.88 it becomes a psychological advantage for the sellers and the carry traders who have been buying the Aussie for long term long trades. Those traders are the ones selling and bailing out and many of them are Japanese.

Wednesday's December quarter inflation reading for Australia will most likely show inflation is at the bottom of the RBA's target band which is around 2%. Weak inflation simply means a weaker economy but unlike the poor Aussie jobs number last week I don't think the inflation reading (unless really poor) will have the same negative impact on the Aussie Dollars price movement. The Chinese GDP number today and this week’s commodity price movement have the potential to have the biggest impact on the Aussie Dollar this week.

Don't ever forget who runs China. It is a communist country and the communist party run the banking system and most other things and whilst there is a chance the GDP number could be out of line with expectation today, don't forget what the communist party wants is usually what the communist party gets, so I don't expect any big surprises on the GDP number today.

In the US this week there isn't any substantial economic data to be released other than the existing home sales on Thursday and a week full of final quarter company earnings. Company earnings will be important for the US Dollar and stock markets because weaker than expected company earnings will likely see stock markets get nervous and a question mark will be put on the US economy once again. The market expects overall company earnings growth to be around 4.9% so anything less than this the market will question.

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