What is NFP Data?
One of the most important economic indicators for the US economy is the non-farm payroll (NFP) data. It shows the amount of new employment created, excluding those at farms, in government, in private households, and at charitable organizations.
In the FX market, NFP announcements often result in significant changes. The NFP data is typically made public at 8:30 AM ET on the first Friday of every month. This article will discuss the significance of NFPs in economics and how to use NFP release information into a forex trading plan.
WHAT IMPACT DOES THE NFP HAVE ON FOREX?
NFP data is significant since it is issued each month and serves as a pretty accurate gauge of the status of the economy at the time. The Bureau of Labor Statistics is the source of the statistics, and an economic calendar lists the date of its upcoming publication.
A crucial indication for the Federal Reserve Bank is employment. When unemployment is high, monetary policy is often expansionary (stimulatory, with low interest rates). An expansionary monetary policy aims to boost both employment and economic production.
Therefore, policymakers will attempt to boost the economy if the unemployment rate is greater than normal because they believe it to be below its potential. Lower interest rates are part of a stimulative monetary strategy, which also decreases demand for the dollar (money flows out of a low yielding currency). See our post on how interest rates affect FX to see how this works precisely.
The chart below demonstrates how erratic FX can be after an NFP report. The March 8, 2019 NFP data underwhelmed with just 20k jobs gained, falling short of expectations of 180k (job additions). The Dollar Index (DXY) lost value as a consequence, and volatility rose.
Data releases like the NFP must be handled carefully by forex traders. A stop-out might occur for traders as a result of the abrupt rise in volatility. Spreads rise along with volatility, and rising spreads might result in margin calls.
WHICH ARE THE MOST AFFECTED CURRENCY PAIRS BY NFP?
Your currency pairings that contain the US Dollar (EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, and others) are most impacted by the data release since the NFP data is a leading predictor of American employment.
When the NFP is released, other currency pairings also exhibit an uptick in volatility, and traders must be mindful of this as well since they might be stopped out. The CAD/JPY during the publication of the NFP data is shown in the chart below. As you can see, even if a trader is not trading a currency pair that is related to the US Dollar, the rise in volatility might force them out of their position.
RELEASE DATES FOR NON-FARM PAYROLLS
The NFP data is typically made public by the Bureau of Labor Statistics on the first Friday of every month at 8:30 AM ET. On the website of the Bureau of Labor Statistics, you may see the release dates.
We advise using a pull-back strategy as opposed to a breakout approach because of the volatility nature of the NFP announcement. Traders should wait for the currency pair to retrace before placing a trade when using a pullback strategy.
We predict that the US dollar will weaken using the same scenario as earlier (NFP findings 20k versus 180k predicted). We utilize the EUR/USD as an example in the following. We predicted the EUR/USD to rise since the NFP statistics came in worse than anticipated.
TIPS & FURTHER READING FOR TRADING THE NFP DATA RELEASES
When utilizing NFP data releases to guide your forex trading, keep the following in mind:
- Every month on the first Friday, NFP data is made public.
- Spreads are expanding and volatility is rising when the NFP data is released.
- Spreads may widen and volatility may rise in currency pairings unrelated to the US Dollar.
- Trading the publication of the NFP data may be risky because of the rise in volatility and potential widening of spreads. We advise applying the proper leverage, or none at all, to fight this and prevent becoming stopped-out.
To monitor for other significant data releases:
While the NFP tends to influence the market, other major data releases include the CPI (inflation), Fed funds rates, and GDP growth.