1. UK Consumer Price Index (Aug 19)
2. New Zealand Dairy Auction (Aug 19)
3. RBA Semi-Annual Testimony (Aug 19)
4. Bank of England Minutes (Aug 20)
5. FOMC Minutes (Aug 20)
6. HSBC China Manufacturing PMI Aug Flash (Aug 20)
7. Eurozone PMIs (Aug 21)
8. Jackson Hole Summit (Aug 21)
9. Canadian Retail Sales (Aug 21)
10. US Philadelphia Fed Index (Aug 22)
There is a very old saying in the stock market that goes “Sell in May, and Go Away.” This pertains to the notion that investors should cash in on their investments this month and take the summer off because June, July, August and September have traditionally been some of the worst months in the equity market.
Over the past decade, this adage has held true. If you were to sell the S&P 500 at the end of May, you would have avoided an loss over the past 10 years. For the EUR/USD however you would have lost out on a gain but selling USD/JPY in May would have been a great idea because the currency pair fell steeply between June and September.
Looking beneath the hood however, the decision to sell in May and go away for the summer is not so easy for currency traders because if you did so in 2009 and 2010, you would have missed out on big gains in the EUR/USD. Between June and September of 2009, the EUR/USD appreciated more than 3 percent and in 2010 it rose nearly 11 percent.
This year, there is a reasonable chance that stocks could continue to fall, leading to more risk aversion in currencies because US data has been mixed and central banks are returning to easier monetary policies. However following seasonality without following stories blindly would be a big mistake.
Next week, the ECB will conducting their second long term refinancing operation. The impact of their first LTRO was significant – in fact, it sparked the stock market rally. If the uptake next week is anywhere close to EUR1 trillion, we could see a similar reaction. The following chart shows how the EUR/USD, the S&P 500 and the German DAX performed since last month’s operation. The vertical line points out the date of the LTRO. Impressive how far a bit of liquidity can go eh?