China: We're #2

Markets are reacting today to the news that China has taken over Japan as the second largest economy and will surpass the United States as the world's largest economy within 20 years. Jon Nadler pointed out in his metals update this morning that the U.S. dollar was lower and the euro gained, while gold was up a bit. He also said that Japan and China could flip-flop for the number two spot in the economy as seasons and metrics used to calculate GDP change.

Nonetheless, China's impact on the world economy always seems to be at center stage these days. (And for those looking to tap into Chinese investment potential, the Forex Trader page in our August issue featured three ways to trade the yuan.) China is a major driver of global growth as it owns a huge amount of U.S. debt in the form of Treasuries and is a driver for commodity prices such as oil. Experts say that a slowdown in China would likely hamper a global economic recovery. Therefore, economic watchers are never likely to keep their eyes off of China for long and its impact on the rest of the world's currencies can't be understated. (For in-depth predictions for currencies through the end of 2010, as well as forex trading strategies, check out our September issue, online Aug. 23).

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