April has been a tough month for dollar bulls but there are reasons for optimism.

Seasonals shouldn't work, but they do. At the start of April, I pointed out that it was usually a miserable month for the dollar and once again that turned out to be the case. I noted that cable had risen in April in nine consecutive years; barring a 4-cent collapse in the next three days, it will be 10 straight.

GBPUSD seasonals

It's also historically the best month for commodity FX and that proved true once again.

One big exception for the dollar tended to be USD/JPY and that also proved true as it continues to trade around 119.00.

What about stocks? April is one of the strongest months and now the S&P 500 is trading at a record highs.

May FX seasonals

So what of May?

I'll have a full report at the end of the month but the trend reverses. It's not as pronounced but commodity currencies weaken May and the pound has fallen in 7 of the past 8 years. It's a dismal month for the euro, the worst on the calendar.

That's not the only part of the equation. The string of disappointing US economic releases has been barely believable. I'm not in love with the US economy but I'm certain that a portion of the weakness is seasonal or because of other special factors. The economy doesn't need to roar back to a 3.5% pace but any pickup from here will rekindle the enthusiasm of the dollar bulls.

Bloomberg US economic surprise index. Worst since 2009.

I think there is money on the sidelines waiting to get into US dollars but traders are waiting for two events that are expected to add to the US dollar headwinds.

  • Q1 US GDP on Wednesday (exp 1.0%)
  • The FOMC decision later the same day

If the Q1 data is soft, and the Fed is less-hawkish, I think it sets up the chance for a blowout in the dollar and I think the time to buy will be a day or two later. Alternatively, if they're soft but not terrible and the dollar doesn't go down, that signals that dollar selling is probably done for now.