What is the NFP？
The non-farm payroll (NFP) figure is a key economic indicator for the United States economy. It represents the number of jobs added, excluding farm employees, government employees, private household employees and employees of nonprofit organizations.To get more news about Forex Article, you can visit wikifx.com official website.
NFP releases generally cause large movements in the forex market. The NFP data is normally released on the first Friday of every month at 8:30 AM ET. This article will explain the role NFPs play in economics and how to apply NFP release data to a forex trading strategy.
HOW DOES THE NFP AFFECT FOREX？
NFP data is important because it is released monthly, making it a very good indicator of the current state of the economy. The data is released by the Bureau of Labor Statistics and the next release can be found on an economic calendar.
Employment is a very important indicator to the Federal Reserve Bank. When unemployment is high, policy makers tend to have an expansionary monetary policy (stimulatory, with low interest rates). The goal of an expansionary monetary policy is to increase economic output and increase employment.
So, if the unemployment rate is higher than usual, the economy is thought to be running below its potential and policy makers will try to stimulate it. A stimulatory monetary policy entails lower interest rates and reduces demand for the Dollar (money flows out of a low yielding currency). To learn exactly how this works, see our article on how interest rates effect forex.
The chart below shows how volatile forex can be after an NFP release. 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.
Forex traders must be wary of data releases like the NFP. Traders could get stopped-out due to the sudden increase in volatility. When volatility increases, spreads do too, and increased spreads can lead to margin calls.
WHICH CURRENCY PAIRS ARE MOST AFFECTED BY NFP
The NFP data is an indicator of American employment, so your currency pairs that include the US Dollar (EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF and others) are most affected by the data release.
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. The chart below shows the CAD/JPY during the NFP data release. 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 Bureau of Labor statistics normally releases the NFP data on the first Friday of each month at 8:30 AM ET. The release dates can be found on the Bureau of Labor Statistics website.
Due to the volatile nature of the NFP release, we recommend using a pull-back strategyrather than a breakout strategy. Using a pullback strategy, traders should wait for the currency pair to retrace before entering a trade.
Using the same example as above (NFP results 20k vs 180k expected) we expect the US Dollar to depreciate. In the example below, we use the EUR/USD. Because the NFP data came out worse than expected, we forecast the EUR/USD to appreciate.