Assessing the strength of an economy that engages in that much foreign exchange trade impacts the world’s reserve currency, the U.S. dollar. Nevertheless, the September NFP report showed that the US economy created 254,000 new jobs in the month, while the Unemployment Rate was confirmed at 4.1%. The US Dollar initially fell after the news but quickly trimmed losses and posted gains that day, as speculative interest understood the economy is in much better shape than initially feared. Market players what is nfp forex now believe the Fed would respond to it by trimming the benchmark interest rate by a smaller 25 basis points (bps) from then on.
Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest. Ahead of the announcement, the US released a couple of relevant reports. On the one hand, the ADP report on private job creation showed the sector added 233,000 new positions in October, more than doubling expectations.
Forex traders must remain alert around NFP releases as these can be accompanied by sudden rises in volatility. To get a feel for the employment situation, it’s good to review the history of previous NFP releases. The NFP measures the number of jobs created or lost in the U.S. economy over the prior month. If the labor market is growing, that means more people are making money, and the more spending there will be. Because the NFP figure displays how many jobs have been added or lost in the sectors covered by the report, it is sometimes known as non-farm employment change instead of NFP.
Understanding Non-Farm Payroll (NFP) and Its Impact on Trading
- A surge in volatility occurs after the release of NFP data since it is under the watchful eye of institutions and retail traders trying to enter new or liquidate existing positions.
- Traders from around the world eagerly anticipate the NFP release dates, as they can lead to major price movements across various assets, especially in the forex, stocks, and commodities markets.
- The connection between NFP trading strategy and economic news releases fundamentally lies in the dynamic nature of forex markets.
- Financial markets also anticipate the Unemployment Rate to tick up to 4.3%.
- The NFP’s impact on forex markets is like throwing a stone into a pond – the ripples can be felt far and wide.
Success in NFP trading isn’t about predicting the numbers – it’s about understanding how to interpret the data and react to market movements professionally. On the flip side, if the numbers come in weaker than expected, forex traders might start betting that the Fed will need to cut rates sooner to support the economy. This usually leads to a weaker dollar as investors move their money to currencies with higher yields.
Manage Risk
- The report includes data on various industries such as manufacturing, construction, and healthcare, making it a comprehensive indicator of the overall employment situation in the country.
- In conclusion, the NFP Forex report is a highly influential economic indicator that can have a significant impact on the currency market.
- Non-farm payroll is a key economic indicator that traders, investors, and policymakers track to understand the overall health of the U.S. economy and the labor market.
- On the contrary, a downside surprise – meaning that the economy has created fewer jobs than expected or has even destroyed jobs – supports price increases for the yellow metal.
- Positive NFP data, indicating job growth and economic strength, can boost the U.S. dollar (USD).
For example, if the NFP release date shows a higher-than-expected job growth, it could boost the value of the U.S. dollar as it indicates a strong economy. Conversely, a lower-than-expected figure could lead to dollar weakness and cause shifts in other markets such as non-farm payroll stocks. The idea of the Simple NFP Day Trading strategy is that it’s based on a longer time frame. The volatility will eventually move the price to your profit target or stop loss. The Non-Farm Payrolls is released along with the US unemployment number on the first Friday of the month. If that day is a holiday, then it may be released on the second Friday of the month.
The screenshot below shows a very common behavior and it highlights the importance of waiting out the first initial knee-jerk reaction. The hourly wages are the final piece of that puzzle because they show the purchasing power of those jobs. For Maven, we have a 2 minute period before and after the new releases but this varies based on the firm.
BLS excludes these categories to ensure that only data from non-agricultural sectors that directly reflect the country’s economy are processed to achieve consistency and accuracy in their reports. NFP reports provide a reliable gauge of the health of the U.S. economy. Strong job growth signals a robust economy and expanding labor market, while weak job growth signals a weak economy contracting.
To tame price pressures, US policymakers kept interest rates high for as long as possible. The NFP came in much worse than expected and this is usually the report most people pay attention to. Then, investors saw that the earnings were up (positive) and the unemployment rate fell as well, which was positive for the Dollar and the EUR/USD fell. Sometimes, you also see adverse effects which don’t seem to make sense at first. This is especially true when the released data surprises the traders. The old saying “you don’t trade the news, but how people interpret the news” applies to NFP forex trading a lot.
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The October NFP report showed that the US economy created a measly 12,000 new jobs in the month, while the Unemployment Rate was confirmed at 4.1%. The US Dollar initially fell with the news but quickly trimmed losses and posted gains that day, as speculative interest understood the poor reading would have no impact on upcoming Fed decisions. The Federal Reserve, the central bank of the United States, closely monitors the NFP report when making decisions about monetary policy, including interest rates.
Do NFP data provide opportunities for traders?
In this article, we will delve into what NFP Forex is and how it affects the market. When the NFP report shows strong job growth, with higher-than-expected numbers, it is generally seen as a positive sign for the U.S. economy. This can lead to a surge in demand for the U.S. dollar as investors view a strong job market as a reflection of a robust economy. As a result, currency pairs involving the U.S. dollar, such as EUR/USD or GBP/USD, may experience a sudden increase in value against other currencies.
Trading Strategies
Every aspiring trader needs a reliable broker to help reach their goals. In the table below, you’ll find a list of Benzinga’s recommended forex brokers. A 5-minute candle will also have a smaller stop loss, so targets are likely to be achieved more quickly which means moving on to the next trade. Below is the March 4, 2022 Simple NFP Day Trading example on a 15-minute chart. It was a good trade, but due to the big stop loss size a trailing stop loss would have also worked well.
NFP is viewed as a critical economic indicator because of its potential impact on monetary policy. The U.S. Federal Reserve uses the data to decide whether to raise, lower, or maintain interest rates to manage inflation and stabilize employment. As such, NFP has a direct effect on forex markets, given the close relationship between interest rates and currency values.
The data is usually delivered on the first Friday of any given month and can create high volatility in the financial markets. 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. EUR/USD experienced an initial bearish move before regaining strength as market participants portrayed mixed feelings over the strength of USD. The breakout and retest strategy is the most popular post-NFP strategy.
Why the Market Moves Differently During NFP
A worse than expected NFP often leads to a falling US-Dollar as investors sell their US-Dollars. Given the potential for sharp price swings, always use stop loss orders to limit potential losses and protect your capital. We’re a community of traders who are passionate about collective growth.