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The non-farm payroll (NFP) figure is a key economic indicator for the United States economy. It forms part of the monthly US employment report from the U.S. Bureau of Labour Statistics. The NFP report shows the total number of paid workers in America not including seasonal farm workers, government workers, private household employees and employees of non-profit organizations. The point of the NFP report is to show how many new jobs were created in the prior month not including seasonal related jobs like farming. This gives us a metric that can be easily compared, month over month and year over year, to help better understand that state of the US economy. As a part of the broader employment data release from the U.S. Bureau of Labour Statistics, we also get data on the US unemployment rate and growth in wages as well as a breakdown of different employment sectors.

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 Labour 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). 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.

NFP and the economy

There are three parts and news releases for each NFP day:

  • 1) The NFP numbers: how many new jobs have been created/lost
  • 2) The unemployment rate: the overall unemployment rate
  • 3) The hourly wages: how much workers are earning on average

NFP RELEASE DATES -

The Bureau of Labour statistics normally releases the NFP data on the first Friday of each month at 8:30 AM EST.

TRADING THE NFP DATA RELEASES: FEW TIPS REMEMBER

The NFP report is arguably the most important fundamental data point for the US economy. So here are a few tips to remember when using NFP data releases to inform your forex trading:

  • NFP data is released on the first Friday of every month.
  • The NFP data release is accompanied with increased volatility and widening spreads.
  • Currency pairs not related to the US Dollar could also see increased volatility and widening spreads.
  • Trading the NFP data release can be dangerous due to the increase in volatility and possible widening of spreads. To combat this and to avoid getting stopped-out, use the appropriate leverage, or no leverage at all.

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