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Basic Fundamentals

What Market Fundamentals Can Affect The Euro FX Futures?

In free market economies, supply and demand is the primary enabler for price movement. Any outside forces that affect supply and demand eventually affect prices. When you are considering a trade in the euro market some of the basic fundamentals that you should consider are:

1. Foreign Reserves - Central banks are diversifing their holdings away from the US Dollar. A U.S. Treasury Department report states that from the end of 1999 to second quarter 2008, foreign reserves in dollars fell from 71% to 62.5%, while euro holdings rose from 18% to 27%. Central bank purchases of Euros gives the currency underlying support.

2. Economy - The gap has been widening between the strong economies and the weak economies of the Euro zone. The spreading debt crisis continues to weigh on the European single currency.
Commodity prices - Europe is largely energy dependant on Russian natural gas and Mid Eastern Oil. As a result, higher energy prices tend to negatively affect the Euro currency.

3. Interest Rates - The European Central Bank (ECB) sets interest rates for the European Union. The ECB tends to focus more on economic activity than inflation. The differences in economic strength of the member countries makes setting fiscal policy very difficult.

4. Trade Balance - The trade balance indicates whether the country is exporting more than it is importing, a positive trade balance, or importing more than it is exporting which is a negative trade balance. A positive balance will translate to upward pressure on the currency as money flows out of the country, causing greater demand, while a negative balance will have the opposite effect.

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