What is the non-farm payrolls news?
The non-farm payrolls is an important economic signal of the United States economy. It depicts the number of jobs added, except the non-profit organizations, government employees, farm employees, and private household employees.
The NFP broadcasts normally result in large movements in the Forex market. The NFP data is generally published on the first Friday of every month at 8:30 AM ET.
This article will illustrate the effect of NFP on the market, and how traders react to or invest in this news.
How does the NFP affect forex?
The NFP data is a significant tool because it is published monthly, which makes it a good tool to use in analyzing the present state of the economy. The Data is published by the Bureau of Labor Statistics and it can be found on the economic calendar.
Employment status is a crucial indicator to the Federal Reserve Bank. When the rate of unemployment is on the rise, the administration might decide to have an expansionary monetary policy, which is the act of stimulating the economy with low-interest rates. The main goal of this act is to improve economic productivity and increase employment.
So, when the rate of unemployment becomes higher than normal, the economy is said to be operating below its potential and administrations will have to fix it. To fix a monetary policy entails having to lower the interest rates of the economy thereby reducing the demand for dollars.
The chart below illustrates an example of the effect of NPF on Forex. On March 8, 2019, the anticipated results for NFP were 180,000 job creations, but instead, the result showed 120,000 new job opportunities. Because of this result as you can see from the chart, the Dollar Index (DXY) reduced in value, and instability was increased.
The effect of NFP on forex
Forex traders need to be very watchful of the results released by the NFP. Trader’s positions could get liquidated because of the abrupt increase in volatility. When there is an increase of instability, spreads increase too, this may lead to margin calls.
Which currency pairs are influenced the most by Non-Farm Payrolls
Since the NFP is an indicator of the state of employment in America, the currency pairs that would be greatly affected are currencies that consist of the US Dollar, which are EUR/USD, GBP/USD, USD/JPY, USD/CAD, AUD/USD etc.
Other currencies are not left out too, they tend to show an increase in volatility once the NFP results are released. Traders must be wary of this, because of the likelihood of abrupt liquidation of trades.
The cad/jpy chart during Non-farm Payrolls
The above chart shows the effect of NFP results in CAD/JPY. As you can see the increase in volatility threatening to liquidate trader’s position even though US Dollar isn’t linked to their currency pair being traded.
Non-farm payrolls release dates
The NPF release date is on the first Friday of every month at 8:30 AM ET, by the Bureau of Labour statistics. The release dates can be seen on the website of the Bureau of Labor Statistics.
Because of the instability caused by the NPF results, it is advised to make use of a pull-back strategy instead of a breakout strategy. By using a pull-back strategy, traders will wait for the currency pair to fall back before opening a position.
Trading the nfp data releases: guidelines and conclusion
Below are a few tips to recall when the NFP data results to boost your Forex trading strategy:
- The NPF data is published on the first Friday of each month.
- The NPF data results are normally followed by an increase in volatility and increased spreads.
- Other currencies not linked to the US Dollars could also record a high increase in volatility and increase in spreads.
Trading on or during the Non-Farm Payrolls data release can be risky because of the rise in volatility and the probability of increasing spreads. To solve this issue and avoid the possibility of your trades getting closed, it is advised that you use the proper leverage or none at all. Double check the stop loss and take profits order settings; also, don’t be too greedy and risk only the amount you’re willing to lose.