Trading the Nonfarm Payroll Report

what is nfp in forex

The non-farm report can have a significant impact on the movements of currencies, equities, and commodities because interest rates have a significant impact on these markets. The expected NFP results for March 8, 2019 were 180k (job additions), the actual result disappointed with only 20k jobs being added. As a result, the Dollar Index (DXY) depreciated in value and volatility increased. This involves placing a buy or sell order above or below the current market price, in anticipation of a breakout in either direction. This strategy can be risky, as the market can quickly reverse direction after a breakout.

The monthly nonfarm payroll report from the BLS can have a substantial impact on foreign exchange (forex) markets when the numbers are released on the first Friday morning of a new month. The NFP report is an important economic indicator that affects the forex market. It provides information on the strength of the U.S. labor market and influences the value of the U.S. dollar. Traders closely watch the release of NFP data for trading opportunities, particularly in currency pairs like EUR/USD, GBP/USD, USD/JPY, AUD/USD and USD/CHF.

  1. The data is usually delivered on the first Friday of any given month and can create high volatility in the financial markets.
  2. To validate a new trend, traders frequently tend to look at earlier reference points.
  3. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools.
  4. Waiting for this initial surge to fizzle out, which may only take a few minutes, is the first step in fading such a move.

A suggested trading strategy involves waiting for initial volatility to subside, identifying an inside candle pattern and using its high or low as entry points. The NFP report is closely monitored by forex traders and investors worldwide due to its potential to impact the U.S. dollar’s value and global market sentiment. Strong employment figures indicate a robust economy, leading to increased confidence in the U.S. dollar and potentially higher interest rates.

How Does the NFP Affect Forex?

The NFP report is a comprehensive measure of employment in the United States, excluding workers in the farming industry, private households, non-profit organizations, and the military. It reveals the number of new jobs created or lost during the previous month and provides a snapshot of the labor market’s health and overall economic growth. Other currency pairs also display an increase in volatility when the NFP releases, and traders must be aware of this as well, because they may get stopped out. As you can see, the increase in volatility could stop a trader out of their position even though they are not trading a currency pair linked to the US Dollar. The logic behind the strategy of trading on the NFP report is based on waiting for a small consolidation, the inside bar after the initial volatility of the report has subsided and the market is choosing which direction it will go.

IndicesStrong employment is a sign that businesses are doing well – but a strong dollar can negatively affected US indices such as Dow Jones, the S&P 500 and the NASDAQ. Using the same example as above (NFP results 20k vs 180k expected) we expect the US Dollar to depreciate. Because the NFP data came out worse than expected, we forecast the EUR/USD to appreciate. Keep track of the ranges and see if the recent reports were near historic highs or lows.

what is nfp in forex

This fact is especially true for forex trades, where volatility can drive significant profits. Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. For the rules and examples below, a 15-minute chart will be used, although the same rules apply to a five-minute chart. Signals may appear in different time frames, so remain consistent with one another. Once the market has digested the information’s significance and initial swings, investors will enter a trade in the direction of the dominating momentum and a signal indicating that the market has chosen a direction.

Besides NFP, which are the other important data releases to watch?

Trading non-farm payrolls can present the opportunity for increased profits on a variety of markets, but the announcement can cause volatility, increasing risk. For instance, too many new jobs could indicate inflationary pressures, which could result in an increase in interest rates. Meanwhile, a decline in the number might be a sign of a struggling economy, raising the possibility of a rate cut. According to the Federal Reserve’s mission on employment, the total number of jobs created or eliminated is a sign of the health of the economy.

Conversely, weak employment figures suggest economic weakness, which can lead to a decrease in the value of the U.S. dollar. Therefore, understanding and interpreting the NFP report is crucial for making informed trading decisions. The Non-Farm Payroll (NFP) report is one of the most significant economic indicators in the forex market. Bureau of Labor Statistics and provides valuable insights into the state of the American economy.

It is possible to wait for wide rate swings to subside when traders can capitalize on the real market move after the early speculators have taken profits or losses. The NFP report is typically released on the first Friday of each month, providing the total monthly increase or decrease in paid U.S. workers across most businesses. Increasing numbers may show economic expansion but may also give investors reason to be concerned about inflation and decreasing numbers suggest a broader economic concern. Waiting for this initial surge to fizzle out, which may only take a few minutes, is the first step in fading such a move. Following that, traders might short-sell EUR /USD by setting a stop-loss order above the rally’s high. The trader is assumed to be anticipating a return to the market’s position just before the announcement of the non-farm payroll figures.

The NFP report is released by the US Department of Labor on the first Friday of every month, and it provides a snapshot of the employment situation in the United States. The NFP report release usually causes a level of volatility that increases the odds of getting slipped. This NFP trading strategy avoids the initial data release and waits for trend confirmation. Nonfarm payrolls (NFPs) are the measure of the number of workers in the United States excluding farm workers and workers in a handful of other job classifications.

By controlling risk with a moderate stop, you are poised to make a potentially large profit from a huge move that almost always occurs each time the NFP report is released. One NFP forex trading strategy is to wait and observe how the markets respond to the news. When the data is first released, there may frequently be a knee-jerk reaction because market movements can be unpredictable. By using a strategy known as “fading” the opening move, this can be avoided. The non-farm payroll (NFP) figure is a key economic indicator for the United States economy.

For these reasons, the FOMC will consider the NFP data when determining whether to raise or cut interest rates. The non-farm payrolls are usually released at 1.30 pm (UK time), or 8.30 am (EST) on the first Friday of every month and offer insight into month-on-month and year-on-year data. Month-on-month shows last month’s number compared to the prior month, while year-on-year shows last month’s figure compared to the same month a year earlier. The Bureau of Labor Statistics measures labor market activity, working conditions, price changes, and productivity in the U.S. economy to support public and private decision making. Two days before that, ADP releases the ADP National Employment Report — a hint for the NFP report.

Fading the initial move

The NFP component usually gets the most attention because it measures the actual number of paid employees (full and part-time) in business and government establishments. The Bureau of Labor Statistics releases NFP data on the first Friday of every month, at 8.30 a.m. This also applies if the market declines sharply after the release of the number. Before opening a buy position with a stop-loss order below the most recent low, it would be helpful to wait and observe if the market pauses. CommoditiesIf it looks like the US economy is performing poorly, traders may turn to safe havens, such as gold and silver. Prior to the release, economists will attempt to predict what the headline NFP number will be, usually arriving at a consensus estimate.

As a beginner in forex trading, understanding the NFP report is crucial as it can have a substantial impact on currency prices and market volatility. In this guide, we will delve into the details of the NFP report and its implications for forex traders. The report is closely watched by traders, who use the data to make trading decisions.

NFP below market expectations

For example, -1000K means 100,000 jobs were lost in all non-agricultural businesses. The Employment Situation Report also includes the Labor Force Participation Rate, the Unemployment Rate, Average Hourly Earnings, and Average Workweek Hours, among many other statistics. Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018.

Trading Opportunities with NFP

Traders should closely monitor the report and use it to inform their trading decisions. While trading the NFP report can be challenging, there are several strategies that traders can use to take advantage of the volatility. Another NFP forex trading strategy involves traders assuming that the first market response was accurate. One presumption is that the market’s sudden movement following the announcement of the non-farm payrolls signals the beginning of a trend for the following trading day. The NFP report consistently causes one of the largest rate movements of any news announcement in the foreign exchange (forex) market. As a result, many analysts, traders, funds, investors, and speculators anticipate the NFP number and the impact that it will have on currency pairs, commodities, and stocks.

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