Trading on seasonal patterns alone is a recipe for ruin but they’re another tool in the forex trading toolbox. The past few months, including April, showed the value of trading seasonals so long as you keep a close eye on the risks. For May, three trends stand out.
#1: Euro will hit the skids on a bad headline
May is by far the worst month of the year for the euro, averaging a 1.4% loss over the past 10 years. The trend fades when you extend it to the euro’s inception but May euro weakness has been particularly pronounced in the past four years, partly owing to a series of negative eurozone political headlines in May.
To me, this trade will need some ECB help but it makes sense from a risk-reward perspective. On the topside, you have ECB desperately defending 1.40 with every jawbone muscle they have. If they back that up with a hint at rate cuts in June, it could be a quick slide to 1.3700 and below.