The Federal Reserve has the mandate to maintain maximum employment in the US, as well as stable prices. So, they’ll pay close attention to the NFP when setting interest rate policy. If employment looks strong, the Fed may consider raising interest rates.
Before any major financial report comes out, there are always projections made by experts. Economic experts attempt to guess what the NFP numbers will be.
Data collection notice
The report reveals important information about the health of the US labour market before the widely-followed NFP release. If the US dollar jumped higher on Friday on a strong NFP number, the market will usually sell the greenback on Monday. Similarly, if the US dollar falls on Friday on a weak NFP report, the market will usually buy the dollar on Monday. If you don’t want to trade the volatile movements right after the release, you can wait and trade the release on Monday by taking a contrarian approach. Whether you’re a fundamental trader or primarily rely on technicals, the NFP report regularly creates large price-movements in the market that can affect your trading performance. Occasionally, the report can send shockwaves through the market if the actual number significantly differs from market expectations. NFP (Non-Farm Payrolls) is an essential pointer of the current economic state.
Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. The NFP report regularly creates large market volatility and profit opportunities for FX traders.
Conversely, weak jobs and low wages will cause the US Federal Reserve to cut official rates to help stimulate growth. It’s worth noting that other currency pairs experience an increase in initial volatility after the release of the NFP report.
- The headline number represents the number of added jobs over a month, excluding farm jobs, government jobs, employees of NGOs, and private household employees.
- Before the release, one needs to evaluate the key support and resistance levels on a 15-minute chart.
- EUR/USD traded well above 1.55 and GBP/USD reached the 2.00 level.
- The old saying “you don’t trade the news, but how people interpret the news” applies to NFP forex trading a lot.
- In this, they will receive a good jobs number and then rush to buy the dollar.
- It’s also worthwhile checking the employment figures for any economy you’re focusing on in your trading, whether it’s the change in employment in Australia or the unemployment rate in the UK.
- However, as we have seen before the Non-Farm payroll numbers can often serve as an early warning sign of the upcoming economic boom or recession.
At FX Leaders, we like to look for 30 pips of upside and risk the same sort of amount to the downside. As you can see, price moved cleanly into the next round number resistance level at 1.0450, giving us a quick and easy profit on the trade.
Trading the trend
In the following lines, I am going to explain a simple trading strategy that aims to take advantage of the large volatility caused by the NFP report. Remember, news trading is not for the faint of the heart, although it can create very profitable trading opportunities. On the other hand, low wages and weak jobs result in a weak economic environment. After the release of the NFP report, the forex market underwent significant price movements. While this strategy can be very profitable, it has some pitfalls to be aware of.
The market may move aggressively in one direction and thus may be beginning to fade by the time an investor gets an inside bar signal. In other words, if a strong move occurs before the inside bar, it is possible that a move could extinguish before a signal. During high volatility times, rates nfp forex meaning can reverse quickly even after waiting for a pattern to set up. The non-farm payrolls report is a significant market event each month. Here we examine what it is and how it can affect your forex trading. Wait for the first bar to form after the report comes out and do not place an entry.
Why does the NFP report exclude farmers and some government employees?
The “simple strategy”, discussed later, doesn’t produce many trades and is more something to do in the background because it doesn’t take much work/focus. As for the Federal workers, the US Bureau of Labor and Statistics tracks the number of public sector employees on a monthly basis. Clearly there are some national security reasons for not publishing those statistics. Also, the actual number of soldiers are determined by geopolitical and strategic necessity, not by economic conditions. Expanding the military does not automatically mean that the GDP growth rate will always improve or the USD would appreciate against other currencies.
How does the NFP affect Forex?
The Non-Farm Payroll announcement has a major influence on the US Dollar, which by extension has a ripple effect through the Forex markets. After all, over 80% of all Forex transactions around the world are made in US Dollars, as it is the world’s reserve currency. Extrapolating that further, if you can get the value of the US Dollar correct, you can quite often use that to your advantage to trading multiple pairs.