Foreign exchange is where politics, economics and business are quantified every second of every day
Toronto — It’s 6:15 a.m. on the first Friday of the month. In a few hours, U.S. non-farm payrolls will be released, the single most influential event in global currency markets each month.
On Canada’s largest trading floor, George Davis, Royal Bank of Canada’s chief foreign exchange technical analyst, is one of the first to arrive. At his desk, facing a row of toy racing cars, he studies news out of Asia and Europe and begins a morning note to clients.
Mr. Davis, 36, has worked at RBC’s foreign exchange desk for 15 years as an analyst and trader, at times moving half a billion dollars at the press of a button. RBC’s daily foreign exchange turnover is about $40-billion (U.S.), putting it in 15th spot for global market share. Volumes on these desks are staggering — almost 12 times the value of all goods and services traded on the planet every year.
The mystique of the world of foreign exchange is what lured him to the job. “Currencies are a mysterious market,” Mr. Davis says. “They bridge the activity that’s going on in all the other markets.”
Foreign exchange is where politics, economics and business are quantified every second of every day, and where the fate of the U.S. manufacturing economy and the strength of the Chinese expansion could well be decided in the coming months. Today’s labour reports, in Canada and the U.S., could offer markets a wild ride. Analysts expect the U.S. economy created 180,000 jobs in July, with the jobless rate steady at 5 per cent. In Canada, analysts expect 20,000 new jobs were added last month, with the rate staying at 6.7 per cent.
Here’s a look at one morning — the first Friday in June — in the world of foreign exchange trading.
7:00 a.m. RBC staff are starting to arrive, lattes in hand. The 340-person trading floor is without pillars, making banter — and multimillion-dollar trading — fluid. Mr. Davis and his colleague, senior currency strategist Jeremy Friesen, study bond, commodity and equity index prices, currency rates and news headlines as they field questions on what’s expected for the day.
7:30 a.m. Mr. Davis joins the morning conference call, which starts with currency traders and strategists in London, the global centre of foreign exchange trading. Mr. Davis speaks next, followed by a New York strategist, who says he’s seeing pension fund and corporate buying in the market. Firms buy and sell dollars, both to mitigate their exposure to currency swings and to fund purchases. If a U.S. company buys a Canadian firm they often need Canadian dollars to do so, a move that can boost demand and send the loonie higher.
Foreign investors will also sell unwanted dollars after offloading Canadian shares, Mr. Davis said. Thus Nortel Networks Corp.’s profit warnings a few years ago would often drive the dollar lower.
8 a.m. Back on the floor, it’s half an hour before the non-farm payrolls report, and traders are making their bets. Although the currency team talks strategy each morning, ultimately Canadian dollar traders — as young as 27 — make their own decisions. To add to the stress, a running tally of the tens of thousands or more they’ve made or lost that day is displayed on their screens, an unrelenting indicator of their performance.
The age-old practice of money exchange has undergone a revolution in the past decade with the advent of electronic, real-time trading. It’s made the market more accessible, liquid and transparent.
Globally, the big guys still dominate. Deutsche Bank is the world’s largest currency trader, with a 16.7-per-cent market share, according to Euromoney magazine. In terms of market share, RBC is the 15th largest in the world, with Bank of Nova Scotia and Toronto-Dominion Bank at 33 and 35, respectively.
8:30 a.m. T.J. Marta, the RBC New York strategist, broadcasts the non-farm payrolls headlines across the Toronto floor. The numbers are way below estimates and a roar goes up as hedge funds, banks, investors and companies sell U.S. dollars on fresh expectations the U.S. Federal Reserve Board will halt its interest rate hikes sooner than expected.
The U.S. dollar plummets. The euro gains. It won’t last — both reverse direction later in the day — but at this point RBC is executing trades of between $80-million and $100-million within seconds.
The secret to being a good trader? “Know when you’re wrong, be willing to admit it and then get out of your position,” Mr. Davis says.
9:05 a.m. The euro and U.S. dollar are already back to levels they were before the report.
10:34 a.m. The traders don’t rest for long. News ripples through the room that a plane has been diverted to Canada after a hijacking alarm. Trading erupts again and the U.S. dollar briefly falls, though by 10:49 a.m. it’s clear it was a false alarm.
“Ten years ago, we wouldn’t have even seen a headline on that, but obviously now in our geopolitical environment, the stakes are higher,” Mr. Davis said.
12 a.m. Back at RBC, the dust settles. Traders are waiting for the weekend. In all, it’s been an odd morning. Weak U.S. jobless figures should have put pressure on the dollar, sending the euro higher. Instead, the dollar’s up and the euro has fallen. “This market’s very difficult to interpret,” Mr. Davis says. “Because it touches so many other factors, you just have to be aware of everything.”
By Tavia Grant
Source: Globe & Mail
Photo credit: kern.justin via VisualHunt.com / CC BY-NC-ND
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