Hey folks! I have decided to switch it up today and have a guest poster chime in and advance our keen knowledge of the forex markets with a very informative article. You find more superb articles from the writer’s collection in the link at the end of the article below.

Most Forex traders, and certainly those who have had any success in the markets, have at least a cursory understanding of the fundamental factors that influence the Dollar. Even those who are new to the markets can be expected to be familiar with the effects of such fundamental factors as inflation, trade deficits, and political on the Dollar’s standing. These, and several dozen other rather obvious variables, are important to study intensely and a good Forex trader should always keep abreast of important developments in all of these areas. And while it is important to never lose sight of these big issues, it can be useful to look around once in a while and examine some more unconventional factors that can influence the Forex markets. These are three of the bigger little factors influencing the Forex markets today.

1. Who’s Who in the EU

The formation of the European Union and the adoption by its member states of the Euro as their currency of choice has caused a dramatic paradigm shift in the Forex markets over the last couple of decades. The Euro has gone from a weakling utilized by just a few small countries to a powerful force backed by some of the most established economies in the western hemisphere. As the composition of the EU changes (the current 27 member states are considering allowing admission to 3 more countries in the near future), the influential Euro is affected, along with the entire Forex landscape. When a new country is admitted to the EU and adopts the Euro as its currency, this development can have one of two effects on the EU’s collective economy and its currency. When an emerging country that has a stronger economic growth rate relative to the EU as a whole is admitted, the outcome is labeled as accretive. When the opposite is true, the effect is labeled as dilutive. It is important to keep track of the ever-expanding EU and its make-up to determine how its currency will be affected and how these fluctuations in the Euro might influence the Forex markets as a whole.

2. Countries with Fixed Exchange Rates

It might seem counterintuitive for a Forex trader to show any interest at all in a country that has fixed its currency to that of another nation. After all, the only action that you can find in the Forex markets is between currencies covered by floating exchange rate regimes. Currencies that are pegged are not affected by the same market principles that affect unfixed currencies and therefore would seem to be entirely uninteresting to a Forex trader. However, a pegged currency can have a huge impact on the currencies to which it is linked, making them very interesting indeed. A prime example of how a fixed currency can affect the Forex markets is the powerful Chinese Yuan. The Yuan is pegged to a number of currencies, primarily to the US Dollar. As of late, the Chinese economy has been expanding exponentially, so in order to hold the value of the Yuan artificially low and keep from breaking its link to the Dollar, the Chinese have been stockpiling Dollar-dominated assets. These actions by China’s Central Bank keep the Yuan low and boost the value of the Dollar. Thus a regime that employs a fixed exchange rate for its currency is able to dramatically affect the Forex markets, however counterintuitive that might seem.

3. China’s growing consumption of raw materials

The Canadian Dollar has recently achieved parity with the US Dollar for the first time in recent memory and the Australian Dollar is creeping up on American currency as well. In addition, the Russian Ruble has outperformed in recent years. What is the driving force behind these success stories? Oddly enough, it’s that no-longer-slumbering economic giant China and its ceaseless demand for raw materials. Canada, Australia, and Russia have stores of valuable commodities such as oil, natural gas, steel and cement; the Chinese want and need these essentials to feed their booming economy and they will pay whatever price is necessary to obtain them. Therefore, the countries that can give China what it needs are benefiting from Chinese expansion. This is yet another way that China, which was until recent years a devoted practitioner of economic isolationism, is now significantly affecting the Forex markets and the global economy.

By-line:

Heather Johnson is a freelance finance and economics writer, as well as a regular contributor for CurrencyTrading.net, a site for currency trading and forex trading information. Heather welcomes comments and freelancing job inquiries at her email address heatherjohnson2323@gmail.com.

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