Purchasing Power Parity (PPP) in Forex Trading

I’ve received a rather strange spam message today from some crazy folks, explaining how messed up the global financial system (and Forex market in particular) currently is. Although it’s a mix of the laughable arguments and the paranoid conclusions of some conspiracy theory nuts, it caught my attention because one of the arguments used was the Purchasing Power Parity (PPP) between US and EU (not Eurozone but European Union for some reason). And I’ve thought that there is a lot of misunderstanding about PPP in the Forex community. I’m afraid there are too many people who know nothing about it, while there are also many traders who believe that Purchasing Power Parity is the main driver of the currency rate changes. In reality PPP is one of the great fundamental analysis tools that can be used in Forex trading among others if you know how it works.