Forex Gump's  Instablog

With the European Central Bank (ECB) interest rate decision and the US non-farm payrolls (NFP) reports already out, it's time for the comdolls to take center stage! Here are major reports from commodity-related countries and how they could affect the Aussie, Loonie, and Kiwi pairs.

AU retail sales (Monday, 1:30 am GMT) - Australia's retail sales unexpectedly fell for the first time this year as consumers react to weaker economic outlook by cutting back on household goods, clothing, and footwear purchases. This caused a 20-pip downward spike on AUD/USD and could weigh on the Aussie until the next economic report.

AU trade balance (Tuesday, 1:30 am GMT) - Higher commodity prices in February boosted supported Australia's trade numbers, enough for its trade deficit to shrink to its lowest level in 14 months. With spot gold rising further in March, it makes sense for investors to expect a 200 billion AUD surplus tomorrow.

RBA interest rate decision (Tuesday, 4:30 am GMT) - Market players generally expect the Reserve Bank of Australia (RBA) to keep its rates steady at 3.00% until June when many quarterly reports are printed. However, some also expect that the central bank would start projecting a dovish tone as early as this month.

China's trade balance (Wednesday, 12:00 am GMT) - Last month China surprisingly posted a trade deficit thanks to manufacturers stocking up on inventory at the beginning of the year. Will this irregularity continue to manifest itself in March? Traders are expecting to see a 15.5 billion CNY surplus, a huge jump from February's 0.9 billion deficit in February.

AU employment reports (Thursday, 1:30 am GMT) - If you remember, employment numbers in March completely erased February's progress and highlighted the employment sector's fragile recovery. For the month of April analysts are expecting to see that 11,500 workers found jobs while the jobless rate remains at 5.6%.

Ivey PMI (Monday, 2:00 pm GMT) -The Ivey PMI indicates whether Canada's manufacturing industry expanded or contracted during the month. During the previous release, the Ivey PMI came in stronger than expected for the month of March as it jumped from 51.1 to 61.6. The estimate for the April figure is at 58.3, but another higher than expected reading could push USD/CAD below parity.

Employment reports (Friday, 12:30 pm GMT) - Jobs reports provide hints on the country's economic prospects as strong hiring usually leads to increased spending and production. For April, the Canadian jobs market could rebound with a 13.5K increase in employment, which would be a small rebound from the 54.5K drop in hiring last March. If that's the case, Canada's jobless rate could hold steady at 7.2%.

RBNZ financial stability report (Tuesday, 9:00 pm GMT) -The Reserve Bank of New Zealand releases its financial stability report twice a year, which means that this event could have a huge impact on Kiwi price action. This report typically contains clues on what the central bank thinks about global economic growth, as well as the state of its domestic economy.

Employment reports (Wednesday, 10:45 pm GMT) - Unlike Canada and Australia which release their jobs data on a monthly basis, New Zealand prints its employment data once every quarter. Recall that New Zealand printed stellar results in the Q4 2012 jobs report, as their jobless rate fell by 0.4% from 7.3% to just 6.9% during the period. For Q1 2013, hiring is still projected to pick up by 1.1%, pushing the jobless rate down to 6.8%.

Once a month members of the European Central Bank (ECB) huddle up to set the interest rates that they would implement for their programs.

Last Thursday the ECB revealed that for the month of May its refinancing rate (the rate European banks pay the ECB when borrowing money) would be cut from 0.75% to 0.50%. Meanwhile, its deposit rate (the rate banks pay the ECB to store their money) would be kept at 0.0%.

Last month the ECB kept its rates steady at 0.75% but had also said that it was willing to do more in case economic conditions deteriorate in the region. Unfortunately, deterioration was exactly what happened since then.

Not only did we see weak consumer and investor confidence, but manufacturing PMIs in key regions had also declined while unemployment rates continued to skyrocket. What's worse though, is that troubled economies like Greece and Spain don't seem to be any closer to economic recovery then they were a couple of months ago.

What's worrying ECB head Mario Draghi and his teams is that weak growth in peripheral countries is now spreading to its core economies like Germany. And with price pressures in the region staying within expectations, the ECB had little excuse but to step up its game.

Earlier speculations of an interest rate cut had dampened EUR/USD's initial reaction when the ECB announced its decision. What's more interesting is how the pair reacted a couple of minutes later when Mario Draghi took center stage. EUR/USD wiped out its 41-pip initial uptick and dropped by a ridiculous 130 pips in 30 minutes!

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Among other things Super Mario nixed talks of ending austerity measures in countries that are doing relatively well against other euro zone nations. Instead of hinting at less austerity measures, he cautioned governments not to "unravel the progress" that they have already achieved.

What got the market players' attention more is Draghi's hints of more stimulus measures. When asked if the ECB would consider using negative deposit rates, Draghi said that the ECB is keeping an open mind about it. That's a huge departure from his former statements of more stimulus having "unintended consequences!"

If you remember, having negative deposit rates would mean that banks would have to pay the ECB to store their money. This could limit credit supply for bank borrowers, but it would also force banks to lend their money to a wider market.

So is the ECB just warming up on its stimulus programs? Many analysts think so. In fact, some are already speculating that other measures like buying corporate and longer-term bonds will soon be on the table as well. Still, it will probably take a couple of months and lots of weak economic data before the ECB seriously considers using other stimulus options. But that's just me.

What do you think? Is the ECB just warming up or is it using its last tools when it cut its rates last Thursday?

Looking back, the "sell in May, go away" adage has actually proven to be quite consistent over the past 50 years. It was first noticed in U.S. markets, but seems to have held true in Canadian and European markets as well.

One explanation why this might be true is because of investors cashing in on their investments in May so that they can take the summer months (normally June to August) off and chill out.

Another reason may be that stock markets tend to perform well from November to April (earnings season, anyone?), then taper off from May to October. With stock prices peaking in April, some traders decide that it's just best to book some profits the following month.

You might be asking, "Mr. Gump, doesn't this only apply to the stock market? What about us forex traders?"

Well, if you were carefully paying attention when reading our School of Pipsology lessons, you'd remember that the equities and forex markets are normally highly correlated. Digging a little deeper, we can in fact see that the old adage has held true in the forex markets as well.

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If you look at the monthly charts of both EUR/USD and AUD/USD, you'll see that the month of May has been very bearish for the past three years. In fact, EUR/USD and AUD/USD experienced their largest monthly losses in May for both 2010 and 2012. Moreover, if you drill down to the smaller time frames, you'll also see that it wasn't a one-time thing. The pairs declined steadily throughout the month.

"If it happened in the past three years, it should be true, right??"

Hold up! Don't get too excited just yet.

Remember that NOTHING is certain in the markets. You should know by now that the past doesn't necessarily predict the future. Heck, if that were the case, trading would be a piece of cake and we'd all be millionaires!

The market environment changes year after year. Themes and factors that dictated the previous years' selloffs may not be present in 2013.

So don't get too caught up with this adage. The worst that could happen is for you to be too engrossed in it that you purposely miss out on obviously bullish trades that you would have otherwise taken.

While the "sell in May, go away" superstition certainly gives us something to consider when trading, I think that you would have a better chance at growing your account if you stick to good ol' hard work. So remember to always conduct your own research and analysis, and make sure to factor in the CURRENT market environment when formulating a trade plan!