The most-anticipated economic news reports in the Forex market are the Non-Farm Payrolls report. It is normally released once on the first Friday of every month and is an in-depth look at employment trends in the U.S. by U.S. Bureau of Labor Statistics. Understanding this data release can help to set up forex trades and can take advantage of unexpected changes in employment.

This article will explain the role of NFP’s play in economics and how to apply NFP release data and how it impacts the FX market in detailed.

What are NFP?

NFP is the main driver of market movement and is often times the single most-watched economic event. Not all economic news events are created equal. Some events produce a lot of hysterical and knee-jerk reactions, while others do not cause corrosion on the radar. So much attention is paid to the NFP report that pundits from across the financial blogosphere attempt to predict its eventuality and impact across a variety of financial instruments.

How traders understand NFP?

• Unemployment data: This is a very closely watched figure because it has the greatest influence on the judgment of the Federal Reserve on economic health.
• Sector growth: The report shows which sectors are expanding by adding jobs and which are contracting, contributing to unemployment. This can give an idea of which stocks, indices and ETFs could rise and fall in the future.
• Hourly earnings: Wage increases and decreases are another part of the attention to get. As wage growth shows economic health, while wage decreases reduce prosperity and reduce consumer spending. This will affect the revenue of the company.
• Revisions of the previous NFP report: Any changes to previous growth expectations can create market movements as traders re-assess their current positions.

NFP Impacts on Forex markets

If the NFP shows a healthy US economy – with high employment, job growth and wage increases – it’s likely to attract investment from around the world. This could drive up the price of the US dollar and impact major currency pairs.

However, if the NFP shows an unhealthy US economy – with high unemployment, low job growth and wage stagnation – then investment rates will fall. This would likely cause the US dollar to fall in comparison to other currencies.

Keep an eye on pairs such as GBP/USD, EUR/USD and USD/JPY, as well as the US dollar index.

How to trade non-farm payrolls and NFP news releases

• Open a trading account with Winstone Prime today
• Research economist’s predictions for NFP numbers
• Choose which currency pair to trade and enter your trade
• Watch the Market and news releases to trade
• Adjust and close positions as necessary

Conclusion

While concluding it there is no doubt that NFP is an important monthly data point and one of the hardest to handicap. Before the NFP release, economists and analysts will attempt to predict what the headline NFP number will be, and eventually arrive at a consensus estimate. Once the real figures are released, the market response will depend on how close the estimate was to the actual figure – as any surprises will cause traders to rush in and out of positions.

The volatility involved means it can deliver a large short-term profit, but hand-in-hand with that also goes the risk of greater short-term losses, so placing risk-management orders can be very useful in this instance. If you’ve never traded the non-farm payrolls, you could start by trading in small amounts, with the appropriate stop-losses in place to protect your position.