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Trading The Non-Farm Payrolls (NFP)
Did you ever witness a situation where the USD pairs began making moves? You wonder what the hell is wrong, why the market is moving against you?
Well, there are several reasons why the market may change its course.
One of them is NFP. Ever heard about it?
If you are a forex trader, you probably have heard the term NFP. If you haven’t, then welcome aboard!
In this guide, we are going to dig deep into what NFP is and how it makes the forex market move.
So, let’s get started!
What is NFP?
The non-farm payrolls, a.k.a NFP, is a key figure released by the US Department of Labor that presents the number of new jobs created during the previous month. These jobs are associated with all non-agricultural businesses in the United States, It is released on the first Friday of every month.
The purpose of the NFP report is to illustrate how much new employment was generated in the previous month, excluding seasonal jobs such as farming. This provides us with a number that can be easily compared month to month and year to year to better understand the US economy’s status.
We also obtain data of the US unemployment rate and wage growth, as well as a breakdown of different job sectors, as part of the broader employment data release from the US Bureau of Labor Statistics.
Not all economic news events are created equal. Some incidents provoke widespread frenzy and knee-jerk reactions, while others hardly register as a blip on the radar. The widely used Non-Farm Payroll (NFP) report from the United States is an example of the former.
NFP Release Dates
Recently we had an NFP on July 2. As mentioned earlier, NFP is released on the first Friday of every month, at 8.30 am ET.
Almost every forex broker has an economic calendar, and you can check the release date of NFP on it.
The next NFP will release on October 8.
Analyzing The Non-farm Report Numbers
A stronger NFP figure is good for the US economy. This is because increased employment creation contributes to a more substantial and steady economic development. People with a job and an income are more likely to spend, which leads to growth.
As a result, forex traders and investors predict a rise of at least 100,000 employment every month. Any release of more than 100,000 claims will contribute to US dollar gains. A release that exceeds the consensus estimate would have the same effect.
How Does The NFP Affect Forex?
The NFP report is an important indicator of the condition of the US economy. This is because jobs are the lifeblood of every economy, and more job creation indicates a healthy and successful economy.
When jobs are created, it puts pressure on employers to raise salaries, giving employees more money to spend. This leads to more spending, which boosts both GDP and inflation.
As a result, the NFP report is closely observed, particularly in currency markets, because the degree of job creation is directly related to interest rates. Interest rates are expected to rise if the labor market and the economy are both strong.
On the flip side, a lack of jobs and poor wages will prompt the US Federal Reserve to lower interest rates in order to encourage growth.
For these reasons, we frequently observe big changes in currency markets following the release of the NFP report.
Just take a look at the GBP/USD after the NFP release:
As you can see, just after the NFP, we had a big bullish GBP/USD candle.
Which Currency Pairs Are Most Affected by The NFP?
In forex trading, because the NFP data is a predictor of American employment, the data release has the largest impact on currency pairs, including the US Dollar, such as the EUR/USD, GBP/USD, or USD/JPY.
However, because the EUR/USD is the most widely traded currency pair in the world, it often has the smallest spread and the most price movement for making trades. During the NFP report, there is minimal need to day trade another pair.
NFP Trading and Risk Management
When you place a trade before the figure is released, you are utilizing logical reasoning to predict where the market will go before it does.
Risk management is critical when employing this method because an unanticipated figure can produce gaps in the market that could hypothetically jump right over whatever risk-mitigation stops you have in place.As a result, it is wise to provide whatever instrument you select to trade a wide range of movement and oscillation to give yourself a better chance.
The NFP Trading Strategy/ How to Trade the NFP and Trades Jobs Data
Here’s a simple NFP trading strategy that you can apply:
Take a look at the projected data for the labor market report at 8:20 am. ET and highlight significant support and resistance levels on the 5-minutes chart.
When the number is released, monitor the market reaction and compare it to the real NFP data. They can be worth up to a million dollars. This signifies that 100,000 new jobs were generated in the preceding month.
If all figures have dramatically outperformed or underperformed market expectations, trade in the direction of the momentum. Large disparities between actual and expected data cause long-term market reactions that can linger for hours or days.
If you’re going long, set a stop-loss level below the most recent support level. If you are going short, set your stop-loss above the most recent resistance level. Set your take-profit aim to be at least twice as high as your stop-loss.
If the US dollar rose on Friday due to a positive NFP report, the market will normally sell the greenback on Monday.
Similarly, if the US dollar declines on Friday due to weak NFP data, the market would often buy the currency on Monday.
If you don’t want to trade the dramatic moves immediately after the publication, you might take the opposite approach and trade the release on Monday.
Other Important Data Releases to Watch
Besides the NFP, you can also look for the ADP payrolls report released two days before the NFP. The report provides critical information regarding the health of the US labor market ahead of the widely anticipated NFP release.
NFP Forex Summary
The non-farm payroll report (NFP) is an important indicator that provides critical information about the state of the US labor market.
Every professional trader you question follows the report and bases their trading decisions on its findings. Therefore, understanding the NFP report might help you capitalize on the significant price movements triggered by the report.
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