The non-farm payroll (NFP) report is a key economic indicator for the United States. It is intended to represent the total number of paid workers in the U.S. minus farm employees, government employees, private household employees and employees of nonprofit organizations.
The non-farm payroll report causes one of the consistently largest rate movements of any news announcement in the forex market. As a result, many analysts, traders, funds, investors, and speculators anticipate the NFP number and the directional movement it will cause. With so many different parties watching this report and interpreting it, even when the number comes in line with estimates, it can cause large rate swings. Learn how to trade this move without getting knocked out by the irrational volatility it can create.
Non-farm payrolls (NFP) are an important economic indicator related to employment in the U.S.
Understanding this data release can help set up forex trades to take advantage of unexpected changes in employment.
Technical analysis can be employed to the NFP report using 5- or 15-minute chart intervals.
Analyzing the Non-Farm Report Numbers
Like any other piece of economic data, there are three ways to analyze the U.S. non-farm payroll number:
A higher payroll figure is good for the U.S. economy. This is because more job additions help to contribute to healthier and more robust economic growth. Consumers who have both money and a job tend to spend more, leading to growth. As a result, foreign exchange traders and investors look for a positive addition of at least 100,000 jobs per month. Any release above—let's say 200,000—will help to fuel U.S. dollar gains. An above-consensus estimate release will have the same effect.
An expected change in payroll figure causes a mixed reaction in the currency markets. Forex investors witnessing an expected change in the NFP report will turn to other sub-components and items to gain some sort of direction or insight. This includes the unemployment rate and manufacturing payroll sub-component. So, if the unemployment rate drops or manufacturing payrolls rise, currency traders will side with a stronger dollar, a positive for the U.S. economy. But, should the unemployment rate increase, manufacturing jobs decline, investors will drop the U.S. dollar for other currencies.
A lower payroll figure is detrimental for the U.S. economy. Like any other economic report, a lower employment picture is negative for the world's largest economy and the greenback. Should the NFP report show a decline below 100,000 jobs (or a less-than-estimated print), it's a good sign the U.S. economy isn't growing. As a result, Forex traders will favor higher-yielding currencies against the U.S. dollar.
Trading News Releases
Trading news releases can be very profitable, but it is not for the faint of the heart. This is because speculating on the direction of a given currency pair upon the release can be very dangerous. Fortunately, it is possible to wait for the wild rate swings to subside. Then traders can attempt to capitalize on the real market move after the speculators have been wiped out or have taken profits or losses. The purpose of this is to attempt to capture rational movement after the announcement, instead of the irrational volatility pervading the first few minutes after an announcement. This why you need the expetise of our Managers at Expertpips, and save yourself the hassle.