The Non-farm Payrolls (NFP) are among the biggest market movers in the Forex markets, together with central bank events or interest rate decisions. Although their impact seems to be decreasing over the last few months.
At the first Friday of every month, the U.S. Bureau of Labor Statistics releases the numbers for new job creation in the US – along with other labor market data. The data includes all paid workers, excluding government employees, private households, non-profit organizations and the farming industry.
It’s an important indicator for how well the US economy is doing and investors watch this report closely. Surprises and major changes in the released numbers can lead to significant price movements. In this article, we show you why it’s so important to understand the implications of this release, how to interpret the numbers and how to trade Non-Farm Payroll in general.
The non-farm payrolls report is one of the most-anticipated economic news reports in the forex market. It is published the first Friday of the month at 8:30 AM Eastern time by the U.S. Bureau of Labor Statistics. The data release actually includes a number of statistics, and not just the Non-Farm Payroll (which is the change in the number employees in the country, not including farm, government, private and non-profit employees). Another metric included in the data release is the unemployment rate.
As one of the most-anticipated economic news events of the month, currency pairs (especially those involving the US dollar) typically see big price movements in the minutes and hours after the data is released. This makes it a great opportunity for day traders with a sound strategy to take advantage of the volatility. Below is a step-by-step forex strategy for trading the Non-Farm Payroll report.
There are three parts and news releases for each Non-Farm Payroll day:
1) The Non-Farm Payroll numbers: how many new jobs have been created/lost
2) The unemployment rate: the overall unemployment rate
3) The hourly wages: how much workers are earning on average
The Non-Farm Payroll provides information about the US labor market, how well the economy is doing and what the future holds: if the economy is not doing so well, companies don’t hire as many new people and might even fire some of their employees. Subsequently, those people lose income and can’t spend their money on things which reduces the overall revenue and general consumer spending and slows down the economy further.
On the other hand, when the economy is doing well, companies hire new employees who now have more money available and can use their additional income to buy ‘things’ and boost the economy, further increasing the need for companies to hire more people to meet the demand.