Trading NFP (Non-Agricultural Payroll): What is NFP and how to trade it in Forex?
The U.S. non-farm payroll report is arguably the most important and volatile edition of the month. Traditionally, markets have responded with huge strides in releasing data.
For this reason, understanding NFP trading in forex markets is a vital skill for traders and is also very lucrative.
WHAT IS NFP?
NFP stands for non-agricultural payroll. Part of the U.S. Bureau of Labor Statistics ’monthly U.S. Employment Report.
The NFP report shows the total number of paid workers in America, excluding seasonal agricultural workers, government workers, employees of households, and nonprofits.
The essence of the NFP report is to show how many new jobs were created in the previous month, not counting seasonal jobs such as farming. It gets an indicator that is easily comparable from month to month and year to year to better understand the state of the U.S. economy.
As part of a broader employment release from the U.S. Bureau of Labor Statistics, we provide data on the U.S. unemployment rate and wage growth, as well as a breakdown of various employment sectors.
Monthly non – agricultural payroll data
How does NFP affect Forex?
The NFP report is a key measure of the U.S. economy. Jobs are vital elements of any economy, and if more jobs are created, it is a sign of a healthy and strong economy.
When creating jobs, this puts pressure on employers to raise wages, which in turn gives employees more money to spend. This leads to an increase in spending, which raises both GDP and inflation.
As a result, the reporting of the NFP is closely monitored, especially in the forex markets, as there is a direct correlation between the level of job creation and interest rates. If jobs are strong and the economy is strong, interest rates are likely to rise. In contrast, as a result of weak jobs and low wages, the U.S. Federal Reserve is cutting official interest rates to stimulate growth.
Therefore, after the publication of the NFP report, we can often experience significant steps in the forex markets.
DATES OF NON – ECONOMIC PAYMENT
The NFP report is released on the first Friday of each month and at 8:30 a.m. in the U.S.
TRADE IN NFP DATA SHEETS: TIPS TIPS & ADDITIONAL LITERATURE
The NFP report is arguably the most important basic data for the U.S. economy. So while interest rate changes also have a big impact on forex, it is important to note that they change as a result of the NFP report. In fact, interest rates are lagging behind indicators in the economy. The NFP report is more of a leading indicator of how healthy the U.S. economy is.
Given the power of the NFP report in forex markets, it is first important to understand the best way to trade emissions.
As with any trade, the absolute value of the NFP report is not as important as the expectation.
For example, just because 200,000 new jobs were created last month will not necessarily be enough information to compromise. This is because the steps to be taken based on the NFP report are based on what the market expected.
Before each release of the economic calendar, analysts and economists examine their expectations and a consensus number emerges.
So in our previous example, if the expectation or consensus was to create 100,000 new jobs and the actual result is 200,000, then that is a positive result, and markets like and USD are likely to rise.
Conversely, if the NFP report expects 300,000 new jobs to be created in the last month and the actual result was 200,000, this would be seen as negative.
This would likely send risky assets such as falling and safe havens or risk-free type assets such as higher.
Account must also be taken of what the report will mean in terms of US base rates. For example, if the FOMC seeks to cut interest rates and maintains a dovish position in monetary policy, a weak NFP report with a lower-than-expected headline could be seen as a positive outcome as it would lead to a reduction in interest rates.
So before trading the NFP report, it is important to clearly assess the underlying mood of the entire market.
NFP FOREX TRADING STRATEGIES
NFP Forex trading strategies are well suited for more advanced traders. This is because the NFP report brings with it increased volatility. During the introduction, we may also experience a significant decrease in liquidity, which is more widespread and involves higher risk.
So as a general rule, you shouldn’t trade the release itself, and you shouldn’t even make trades for new traders.
The most effective strategy for NFP report trading is to combine a combination of technical and fundamentals.
You must first identify the forex pairs that may be most affected by the result. Obviously, the USD is strongly influenced.
would be a good choice based on strong liquidity.
Keep in mind that the result that the NFP report exceeds expectations is likely to be positive for the USD.
So this would mean that EUR / USD or GBP / USD would probably trade the announcement in reverse.
As mentioned, we want to try and combine both the technique and the basics.
It is very important not to trade around the actual release. You don’t want to enter an open position in your NFP report and you don’t want to trade in the minutes that follow.
You will often see commodity trading in wide ranges and rotate back and forth. Often, traders simply execute market orders and stop the blow. There is no real follow-up and not much can be achieved from participation.
However, 30-60 minutes after its release, the price will start to move and will ideally move in one direction.
Keep in mind that NFP is a key essential catalyst. This will drive the price. From now on, we build strategy with technical tools.
I am not interested in the outcome of the NFP report, we are simply trying to move forward with momentum.
Before release, you need to determine the most important support and resistance levels on a 30-60 minute chart. Then when prices break through these levels, you can use them as an entry sign.
Thus, it buys strong pairs over the most important resistance and shortens weak pairs under the support, behind which is a basic catalyst.
NFP FOREX TRADING EXAMPLE
EUR / USD – 5 minutes.
In this example, market expectations are that 160,000 new jobs will be created in the previous month. The actual result remained below expectations, which was therefore negative for the USD.
This would distort us upwards in EUR / USD as we expect the Greenback to weaken.
As the chart shows, there was a small whip on the bar when the NFP report was published. As mentioned, we need to avoid the minutes after the release.
We can also see that there was a round number resistance level at 1,040, which was a good level for shutdown, publish the NFP report.
Once the price has broken through the 1,040 resistance level on a 5 minute chart, we are looking at a possible long entry. Because we have the basic driver (NFP report) and a key technical level.
As you can see, the price first breaks through and then pulls back, testing, which supports and holds.
When prices close above 1,040 on the retreat, it’s a good long entry sign.
At FX Leaders, we like to earn 30 altitude signals and risk the same amount against the downside. As you can see, the price has clearly moved to the next level of resistance, 1.0450, which is a quick and easy profit in trading.
Keep in mind that trading around data releases is a more advanced skill, especially for big ones like the NFP report. NFP forex trading is an ability that you can build over time, but always be cautious given the lack of liquidity and great potential in both directions.