Today, we are very happy to publish a new forex interview with the terrific forex blogger Adam Kritzer. Adam writes for forexblog.org and covers just about all areas of the global forex and economic landscape. Adam is based in China and was kind enough to share some of his views as they pertain to the forex market.
How did you become involved in the forex world? Was there something particularly attractive to you about the forex market?
It happened by chance. I had studied economics in university, and had been exposed to forex mainly on a theoretical level. After graduating, I was offered a job as a forex journalist, and that led to the Forex Blog. That being said, I find forex more interesting than the capital markets, because it lends itself to a more big-picture approach. I was never one to drill down into specific data, which I think is necessary if you want to be a successful investor in stocks, bonds, etc.
Could you elaborate a little bit on how you got your “forex” education?
As I said, I studied economics in university, so I had a pretty strong theoretical foundation. Unfortunately, practical forex is much different, and often contradictory to, theoretical forex. For example, the economics of currencies is grounded largely in the notion of interest rate parity, which purports that currencies tend to move inversely with interest rates. In practice, however, the so-called Fisher effect has been observed, whereby money moves from low-yielding currencies into higher-yielding currencies, brought about by carry trading. In short, I educated myself simply by paying attention to the markets.
How often do you trade, are you a full-time trader? Do you trade longer or shorter times? Do you have any preference on the currency pairs you trade?
I invest in currencies via ETFs, since I think leverage is both dangerous and unnecessary. I will usually maintain positions for at least a year, just like any other investors. If I spot an opportunity, however, I will invest for shorter durations. Usually, I stick to the major currencies, which are most liquid and transparent.
Do you use more technical analysis or fundamental analysis, both? Do you have any favorite indicators, economic or technical? and why?
I rely mainly on fundamental, economic analysis. I think trade/current account/capital account data is the most useful predictor of a currency’s long-term health, because it indicates whether investors/businesses (as opposed to speculators) think about a currency. I rarely use technical analysis, at least not in the conventional sense of charting and relying on arcane indicators. That being said, a good investor must always be cognizant of market psychology (which technical analysis implicitly aims to capture), so you could say that the “spirit” of technical analysis still plays a role in my approach to forex.
Is there any one aspect that you find the most challenging?
Sometimes, currencies appear to move somewhat nonsensically. As a journalist/analyst, it’s my job to try to discern trend(s), but sometimes there are multiple, contradictory trends, which can have a confounding effect on the markets, making it difficult to understand what’s going in. Sometimes, you just have to sit back and be patient, and wait for a dominant trend to emerge.
On the forex market What do feel is the major theme playing out right now in the forex markets? Can we look forward to any changes? Particularly on the US Dollar outlook, do you have any thoughts on whether we will see continued Dollar weakness or maybe there will be a turnaround?
The forex markets continue to be dominated by the ebb and flow in risk appetite, as investors move funds out of so-called safe-haven currencies and into higher-yielding alternatives. Investors are desperately searching for signs of recovery, but so far, the data just isn’t there. A few weeks ago, analysts thought that US labor market data was a precursor for economic recovery and consequent interest rate hikes, but only a few days later, they had already accepted this as erroneous. Until, there is more clarity on the economic front, I think the markets will continue to favor an approach based on risk tolerance.
We have seen Central Banks keep interest rates at extremely low levels since the financial crisis, do you feel that we can look forward to rates starting to rise?
No, I don’t think western Central Banks will begin to hike rates for at least six months, and in the case only the Bank of Australia will hike. For the Fed, it will be another year. For banks who were slower to cut rates, they are further out on the curve, and it could be late 2010 before they follow suit.
On your blog (forexblog.org), you have written about many exotic and emerging market currencies, do you recommend any currencies to watch that you think have the potential to do well over the rest of the year or in the future?
I think emerging market currencies have outperformed over the last few months as a result of the return of the carry trade. However, in most of these cases, economic fundamentals have played only a marginal role. With the exception of China, almost every country will still contract in 2009, on an annualized basis. When this micro-bubble pops
is anyone’s guess, but I think we are due for a correction.
I read on another interview that you live in China, could you comment on the current Chinese economic climate? How about the Yuan, is there ever any talk about letting the currency float more freely?
Yes, I am based in China. To be honest, if I hadn’t been monitoring the economic crisis as it bears on forex markets, I might not have known that it was so severe in the rest of the world. People say that it’s more difficult to find a (high-paying) job here than it was last year or the year before, but otherwise I think the crisis has already passed in China, and that notion is also born out by the data. I live in an area that is frequented by tourists, and I can say that domestic Chinese tourism this year probably set another record.
With regard to the Yuan, I don’t expect it will float freely anytime soon. I think the government will allow it to resume its modest upward appreciation as soon as the economy officially exits the recession.
Finally, do you have any advice to anyone starting out in forex trading? Is there anything in particular that you wish you had learned when you started out?
I am generally skeptical of the idea of expertise, especially when applied to forex or any other part of the capital markets. There are certainly investors who have better track records than others, and analysts who seem to have a better idea of what’s going on, but at the end of the day, everyone is “feeling their way through the dark.” In other words, I think it’s important to understand the basics – forex terminology, the mechanics of the market, the mainstream theories that seem to govern the performance of currencies. In the end, I think every investor has to develop his own approach, since there’s no such thing as a hard-and-fast rule.