When I first was hired as an assistant editor at Futures back in the mid-1980s, I immediately called my father, who though an attorney, grew up on a farm. I was excited I got a job, but downplayed the subject matter a bit, realizing it wasn’t Rolling Stone. Dear old dad would not have been as impressed if it had been Rolling Stone, because he immediately spoke eloquently about the incredible importance, and excitement, of the subject I was to cover. He noted that commodities touched everything in our daily lives, from the food we eat to the cars we drive to the money we spend. He realized long before I did that the futures markets were a proxy for everything we do in our lives, and are touched by everything global, political and of course economic. My dad’s enthusiasm was infectious, and I’ve thought to this day that covering the derivatives markets truly is the hottest beat in town.
I remembered this conversation when I read our cover story on Jamie Thorsen, who until recently was executive managing director for BMO Capital Markets and a forex trader for more than 30 years (see “Jamie Thorsen: A natural in forex,” by Managing Editor Dan Collins). In the interview, Dan asked her whether she took to the forex markets right away. Her answer was a resounding yes, adding “I still think that foreign exchange is the absolute best market in the world. It is the deepest, most liquid global market. Everything affects it: Interest rates...global political intrigue...instability in any region...I can’t imagine that any other market would be more fun, provide more challenges and have as smooth an application than the foreign exchange market. Every aspect of the entire global economy is part of the foreign exchange market.”
Although I agree with her wholeheartedly, I’d add that in this new world, all markets are interconnected, from grains and energies to financial markets. When sovereign debt sneezes in Europe, the world catches a cold. That is what I love about the derivatives markets, and whether the general populace knows it or not, traders touch their lives in some way.
Forex famously has been a trending market, but the governmental austerity programs now in place are causing some markets to bounce around in a narrow range. Some currencies, such as the Australian dollar and the Canadian dollar, have seen volatility spikes because of commodity prices, but the euro especially has confounded traders (see “Dollar wins by default…again,” by Senior Editor Phil Burgert). Perhaps currencies respond more to political maneuvering and comments from our central bank leaders than other commodities, which thrive on supply/demand figures. Hence, when Federal Reserve Chairman Ben Bernanke said we probably would have low interest rates into 2014, it directly affected the dollar’s chances of strengthening. And when European leaders implemented austerity programs, it meant little movement for the euro.
Then again, in the United States there is a presidential election in November, and according to one analyst, that portends a strengthening of the greenback. The recovering U.S. economy, which doesn’t have the multiculture headaches of the European Union, also could bode well for the dollar. Even Thorsen sees the dollar stabilizing, but cautions that housing will be a key for economic growth.
To technical traders, talk of global woes, central bank intervention and supply and demand typically is shrugged off: Everything is in the price. But the best traders I know always have kept an eye on the news, understanding that the global machinations that make up political and economical forces provide context to market moves. And for those of us who like a story with our price movement, we thrive on the intrigues and mayhem.