Investors will turn away from the US dollar in favor of other currencies if the unemployment rate rises and manufacturing jobs decline. The study found that periods of high economic uncertainty, such as during the 2008 global financial crisis, have a greater direct impact on NFP data outcomes and EUR/USD exchange rate prices. This suggests that the “exchange rate definition” of currencies is more sensitive to NFP announcements, and exchange rates How to Become a Project Manager will often rise or decline depending on the NFP headline numbers released.
Then, based on the NFP result, the forex trading sentiment can be determined for the following days. For example, higher-than-expected NFP data support a hawkish stance from the Federal Reserve, which may lead to speculation of a rate hike and, as a result, an increase in the value of the US dollar. Essentially, the report measures the number of workers in the US labor force, excluding farm workers, private household employees, and government employees. The U.S. Department of Labor's Bureau of Labor Statistics releases the monthly jobs report on the first Friday of a new month with some exceptions due to holidays. The report covers the relevant employment statistics from the previous month. Numbers that are released on the first Friday in February include data for January.
The ECB is set to follow June's 25 basis point rate cut with another similar reduction on Thursday. The Eurozone faces slow economic growth and persistent inflation, with Germany, the region's largest economy, being the biggest drag due to manufacturing struggles and cautious consumer spending. The opposite is true when the data is stronger than economists' expectations. A strong report can sometimes motivate traders to buy U.S. dollars on expectations that economic growth in the United States is improving.
This example looks at the EUR/USD forex pair and its price action during the NFP event. NFP affects the forex market because the job reports paint the picture of the U.S. economy — the largest in the world. Assessing the strength of an economy that engages in that much foreign exchange trade impacts the world’s reserve currency, the U.S. dollar. Non-farm payrolls, or NFP, is an economic indicator that estimates the total number of jobs gained or lost in the U.S. economy for the past month, excluding jobs in farms and other categories. NFP is part of the monthly Employment Situation report released by the U.S.
The market fallout from the release can then be magnified depending on the closeness of the estimate to the actual figure. Filippo specializes in the best Forex brokers for beginners and professionals to help traders find the best trading solutions for their needs. He expands his analysis to stock brokers, crypto exchanges, social and copy trading platforms, Contract For Difference (CFD) brokers, options brokers, futures brokers, and Fintech products. Its blend of sophisticated analysis tools, customizable features, and supportive community. This makes ATAS the recommended choice for traders aiming to leverage the full potential of the futures market.
Trading Knowledge
- As a trader, it's important that you keep an eye on the market and track analysts’ expectations, so that you can make more informed decisions when trading the non-farm payrolls.
- If the labor market is growing, that means more people are making money, and the more spending there will be.
- Since the US labor force is over 160 million, ADP’s glance of how a portion of the private sector is performing could be helpful in confirming the trend of the labor market.
- The August NFP report showed that the US economy created 142,000 new jobs in the month, while the Unemployment Rate was confirmed at 4.2%.
Trading post-NFP release is less risky because traders avoid the initial NFP volatile price swings. For instance, EUR/USD traders who waited 15 minutes after the NFP numbers release of 3rd February 2023, which was overwhelmingly positive, received clear trend entries with almost no drawdown. We also see a significant reduction in liquidity in the lead-up, which makes spreads wider and risk higher. There is also the need to factor in what the report will mean for underlying interest rates in the US. So in our prior example, if the expectation or consensus was for 100K new jobs to have been created, and the actual result is 200K, then that is a positive result and markets such as the SPX and USD, would likely rise. For example, just because there are 200,000 new jobs created in the prior month, isn’t necessarily going to be enough information for us to trade-off.
Non-Farm Payrolls (NFP)
Effective Forex trading using non-farm payrolls involves staying informed, managing risk, and having a well-defined trading strategy. With that in mind, an NFP report that shows fewer jobs created than what is expected could boost the odds for another 50 bps cut in November. Two days before that, ADP releases the ADP National Employment Report — a hint for the NFP report. 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.
Trading on News Releases
Others might base their decisions on expected figures before the report is released. The non-farm payroll report causes one of the consistently largest rate movements of any news announcement in the Forex market. As a result, many analysts, traders, funds, investors and speculators anticipate the NFP number and the directional movement it will ig group announces launch of foreign exchange provider ig us cause. With so many different parties watching this report and interpreting it, even when the number comes in line with estimates, it can cause large rate swings. Learn how to trade this move without getting knocked out by the irrational volatility it can create.
The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect practical linux for network engineers to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. With US CPI on course to dropping towards the Fed’s target, Powell has already given the green light for cutting interest rates at the September 18 FOMC meeting.
What is an Example of a Non-Farm Payroll Report in Forex?
To manage this risk, use proper risk management techniques, such as setting stop-losses and reducing position sizes. If the NFP report deviates significantly from market expectations, be prepared for increased market volatility. To prepare for trading the NFP report, mark the release date on your calendar, stay informed through economic calendars, and monitor market expectations.
