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The economy and the markets are closely interconnected. Any positive or negative reporting in key economic numbers or an anticipation of it can have far reaching implications and traders are always on the lookout to profit from these market movements.
Today, we will discuss an important economic report – the non-farm payrolls report – and how you can use it to target potential profits.
It is especially crucial to understand this report now because a strong reading in non-farm payrolls could lead to the Fed continuing its rate hike policy for some time. And that can lead to huge market movements in the Forex as well as other financial markets.
Our expert analysts have been discussing these market shifts and how you can target profits in a wide variety of markets. Check out their trading strategies >>
Let’s now delve into what the non-farm payroll report is all about…
The NFP Report
The non-farm payroll (NFP) is an economic report used to describe the number of Americans employed in the United States, excluding farm workers, government employees, private household employees, and non-profit organization workers.
The report studies U.S. employment via two main surveys:
- The U.S. Household Survey: This report breaks down the employment numbers on a demographic basis, studying the jobs rate by race, gender, education, and age.
- The Establishment Survey: This tracks the amount of jobs by industry as well as the number of hours worked and average hourly earnings.
The U.S. Bureau of Labor Statistics then combines the data from these reports and issues the updated figures via the nonfarm payroll report on the first Friday of every month.
Some call the week leading up to the report as “NFP week” and many market participants view the report as a key economic indicator of the US economy.
Why is the NFP Report Important?
The non-farm payroll data included in the jobs report typically has the most market impact news. It’s seen as a measure of market risk by many market participants because any big change in the reported numbers can create potentially large market movements in stocks, bonds, gold, and the U.S. dollar.
The payroll data is analyzed closely by investors as well as economists because of its importance in identifying trends related to the rate of economic growth and inflation.
If non-farm payrolls are expanding, the increase is an indication that the economy is growing. However, if the increases in non-farm payroll occur at a rapid rate, it could lead to an increase in inflation and that may indicate a concerning sign for the economy.
Furthermore, the data on wage growth and the rate of unemployment helps in determining how major companies in an economy are performing and what their economic outlook is, which further influences the general market sentiment.
With that, let’s now understand how one can learn to better trade the Forex market using the NFP reading.
Trading the Forex with NFP reading
As with many other economic indicators, the difference between the actual non-farm data and the figures expected by economists often determine the overall market impact.
If there are any major surprises or disappointments, which deviate from expectations, the Forex market will likely react to the new reality by adjusting prices and exchange rates.
For example, if the non-farm payroll growth is lower than economists’ estimates, Forex traders might be motivated to sell the U.S. dollars. This would be in anticipation of a weakening currency amid concerns that economic growth is not as robust as previously thought and that might lead to a fall in the USD.
The opposite can also be true. When the data is stronger than economists’ expectations, i.e. a strong NFP reading can sometimes motivate traders to buy the U.S. dollar on expectations that economic growth in the U.S. is improving.
The strategy in the above examples can be to buy or sell USD setups. If the NFP reading exceeds analyst expectations or is higher than the last reading, the USD can rise against a basket of currencies. Say for example, you are trading the USD/JPY, the strategy here can be to buy USD/JPY pairs.
Another way to trade the NFP is to create a strategy based on how you think the markets will behave in the future depending on the reading. You can attempt to factor the projections for NFP report into the price of different types of investments and plan trades accordingly.
So there you have it – a simple way to read the NFP report every month and accordingly strategize your trades in the Forex markets.
Do check it out in the coming month when the NFP report is out!
Our top analysts have been reading a few currency setups based on the non-farm payroll releases and their charts seem to be forming an exciting pattern in the current market.
Know about these setups and trade them LIVE with our pros in our upcoming webinar by clicking HERE.
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