TRADING THE NON-FARM PAYROLL (NFP) REPORT
The Non-Farm Payroll (NFP) report is meant to reveal the total number of paid workers in the United States not including farm and government employees. It is one of the most important economic announcements in the USA. This report is usually released on the first Friday of every month.
There is always a lot of anticipation leading up to the announcement in the forex market. Analysts, traders and investors alike try to predict the NFP figures, along with the movement and direction it will cause in the markets. Generally, the day after the numbers is released, there are many trading opportunities to be had by all. This information is critical because jobs in the US represent 80% of the total workforce.
With so many people watching this report and clarifying the results, even if the numbers are as expected, it can cause major swings with various interest rates. Learn how to trade the volatile NFP report.
Why is the Non-Farm Payroll Important for Traders?
Trading the NFP can be highly profitable, but it is not for the weak at heart. A news release such as the NFP can spark high volatility. Generally, a volatile market is a source of trading opportunities and potentially bigger profits or losses.
The release of the NFP usually takes place on the first Friday of every month at 8:30 a.m. EST. The NFP creates a potentially good environment for active traders because there is a high possiblity of major market movements following the announcement.
It’s a good idea to approach the NFP from a logical viewpoint, based on how the market is reacting. This can provide traders with more consistent results than merely guessing the direction of the report.
The jobs figures released reveal the status of the economy, especially if the number is much higher or lower than expected. This scenario can have huge implications for financial markets and the Forex currency market. The large shifts in currency value mean an overall good opportunity to trade.
The NFP Report and Initial Strategy
The NFP report usually affects all major currency pairs; however, one of the favorites among traders is the GBP/USD. With the forex market open 24 hours a day, all traders worldwide can trade the event.
A good strategy is to wait for the market to react to the information released. After major market contributors have had time to reflect on what the number means they will enter a trade. They will then wait for a signal that the market is headed in a specific direction.
By waiting, you will avoid getting in too early and lower your risk before the market has chosen a direction.
Tips for Trading the NFP Report
The first tip for trading the NFP is to make sure you have a good understanding of the employment conditions in the USA. This will give you confidence as you’ll understand the full impact of the report. Therefore, it is very important to stay up to date on news related to US employment.
NFP news is short-term, the actual impact can last a few hours. This means traders wanting to take advantage of the market movements must act within the first few hours of the release.
Traders should approach the trade after the NFP in a logical way and not simply guess the direction of the movement.
An important tip to remember is that the NFP report affects most major currency pairs. This means one can trade in any currency pair, since most economies are affected by the US economy.
Traders need to wait for the market to consider the NFP report’s significance and think about the actual impact it would have on the country before entering a trade.
How does the NFP impact the USD?
In short, the better the employment figure (more payrolls added), the better the USD will perform. If figures are low this will be detrimental for the USD.
Different Approaches from Traders
During the NFP release, the markets can be volatile. There are usually two price reactions to any NFP release:
First, there will be an immediate spike in volatility.
Second, the price alternates as more and more as traders process the numbers. This will cause the price to start moving in a specific direction.
You will have much more success if you develop a strategy and stick to it. Watching for the “big move” and then letting volatility subside is a good way to decide wish way the market is moving. Good traders will assess whether the price moves higher or below anticipated results. The monthly NFP from the US Department of Labor can have a substantial impact on the markets (especially forex). This is because traders and investors are always monitoring indicators to identify trends in economic growth. Some of the most-watched economic indicators include inflation, housing stats, gross domestic product, and the monthly payroll report. the NFP contains a variety of data and statistics regarding the employment situation in the United States. High employment is a good indicator of economic growth, similarly poor figures reflect stagnant or declining growth.
Important Final Tips for Traders
Do not trade the actual NFP numbers, trade people’s reactions to those numbers.
The NFP number is the most watched of three reports, and it’s released with 3 figures to review: the previous month’s NFP, the forecast made by experts, and the actual numbers that released to the public. With that said three things can occur which often determine investors’ reactions:
The actual number is higher than the forecast – Dollar will likely rise
The actual number is lower than the forecast – Dollar can likely fall
The number is higher than forecasted and lower than previous
No direction to be taken, lots of volatility as investors do not know which way things will go
The number is higher than forecasted and lower than previous – No direction to be taken, lots of volatility as investors do not know which way things will go
Major Currencies of the Non-Farm Payroll
The major currency pairs which are most traded during this event are the EUR/USD, GBP/USD, AUD/USD or USD/JPY. The major currency pairs tend to move as traders buy or sell the USD depending on how well the US economy is reportedly doing.
Being prepared for the release is important. Get your trading account ready with CMTrading today and benefit from all of our educational and news materials leading up to this event.