The headliner for the April seasonals package was that risk trades had room to continue to run.
That didn’t turn out to be the case at all but some of the seasonal trades still worked. For instance, our first pick was AUD/JPY longs. That pair made some good headway in April and still finished the month higher despite heavy selling in the last week or so.
Another one that worked was oil. Despite the SPR and China lockdowns, oil was remarkably resilient. That might speak to seasonal demand.
In other trades like stocks, cable and USD/CAD the seasonal patterns didn’t work at all.
Ultimately, they’re one part of the toolbox and are running into an aggressive Fed and expectations of a global growth stumble combined with a broad deleveraging.
Here’s what May has in store:
1) AUD weakness
The Australian dollar is unusually weak in May right across the board, even against related currencies like CAD (it’s the weakest month of the year by far in AUD/CAD).
2) Don’t doubt the dollar
The rally in the dollar was the singular event in the FX market in April. It took down some big levels against GBP, EUR and JPY — hitting multi-year highs. What next? The seasonals say it’s no time to stop betting on the buck. In the past 20 years, it’s averaged a 0.69% gain — the best of any month, including gains in 9 of the past 12 years.
3) Euro weakness
Given the strength in DXY, it should be no surprise that May is a weak month for the euro. In fact, it’s the weakest month by a decent margin. I would note though that it’s risen in May for two consecutive years. Still, there’s been a technical breakdown in the pair and the ECB is struggling to manage a rapidly-deteriorating growth picture combined with an inflation shock and a war. That’s not a pretty fundamental picture.
4) Cable softness
Cable crumbled late in April and there isn’t much seasonal help coming in May. It ranks as the second-worst month on average and is on a streak of declines in 11 of the past 12 years.