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.

Compare with:

March FOMC Statement
Release Date: March 13, 2012
For immediate release

Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.
The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.

Renminbi Undervaluation

1. Outlook for the yuan and the impact of slower growth in China on the FX markets (It would be great if You can comment on China’s Trade / growth momentum in relation to FX as we have Trade figures tomorrow and GDP figures on Friday). Also what’s your outlook for the Yuan?

I am long term bullish Yuan and its one of my favorite currencies on a one year outlook basis. Unfortunately the currency has not performed well lately due to the prospect of slower growth. Given the outcome of the latest PBoC meeting and the slowdown that we will likely see in this week’s GDP numbers, the market will continue to discount more policy fine tuning from the PBoC. As a result, I believe there is scope for some further CNY weakness before strength.

Also when do you think Yuan will become fully convertible?

We are looking at 3 to 6 years. China has accelerated the use of Yuan internationally through bilateral swap agreements. There is a lot of talk that this will happen in the year 2015 but this could be a bit ambitious. Either way though, China should achieve full convertible by 2020.

2. Outlook for the Euro. Recently we had Spain aution that didn’t go that well. There are renewed concerned that debt crisis will spread. Is the worst over you think? What’s your take on the Euro?

NO! The worst is yet to come. This was terrible news for Spain. I think the European sovereign debt crisis will exacerbate / escalate, necessitating another LTRO from the ECB this year.

3. BOJ concludes policy meeting tomorrow. There has been some talk that BOJ may add stimulus some time this month to help the economy and ease the strengthening yen. What’s your take on BOJ / yen?

No stimulus this week. BoJ still assessing impact of asset purchase expansion and inflation goal.

4. The latest U.S. employment figures missed estimates. Economists have been concerned about the pace of the U.S. recovery. What’s are your views on that and the dollar?

The US payroll figures validate the Fed’s concerns about the sustainability of the labor market recovery and renews concerns of QE3. I can speak in detail about why I DO NOT believe that QE3 will be implemented but that does not preclude investors from being on QE3 watch. The U.S. recovery has hit a road bump but at the end of the day, the US economy is still recovering and will contribute positively to global growth. As long as asset markets don’t plunge, the Fed won’t resort to QE3, an option that will be reserved for a more desperate time in the US economy. As for the dollar, I think the dollar rally last week was misplaced. The FOMC minutes was from the March 13th monetary policy meeting. Bernanke made dovish comments well after that. The weight should therefore be placed on Bernanke’s comments and not the FOMC minutes.

5. What are your top currencies now? Also what’s your take on commods currencies, the likes of Aussie, kiwi?

Fav is long CAD and short EUR. I am bearish AUD, neutral NZD.

Here’s my presentation schedule:

Sat April 7 Investfair
11am 3 Ways to Trade
1pm 2 Min FX and Commodity Market Outlook
3:30pm-4:30pm Panel Discussion Market Outlook
5pm 2 Min FX and Commodity Market Outlook
6pm 3 Ways to Trade

Sun April 8
11am 3 Ways to Trade
12:30pm-1:30pm How to Trade EUR, Oil and Good
2pm 2 Min FX and Commodity Market Outlook
5pm 2 Min FX and Commodity Market Outlook
6pm 3 Ways to Trade

MEDIA INTERVIEWS

I will also be appearing on local media, so catch me live if you can:

Tues April 10
8am Channel News Asia
10:10am Bloomberg

Wednesday April 11
8am-9am Guest Hosting CNBC Asia