The nonfarm payroll report (NFP) is a key economic indicator in the United States. It represents the total number of paid workers in the US, excluding agricultural employees, government employees, non-profit organization employees, and domestic workers.
The monthly non-agricultural payroll report is a major economic data release. It often causes significant market volatility, and a larger price movement than most other economic news releases. Because of this, many analysts, traders, funds, investors and speculators try to predict what the NFP report numbers will be, and what affect it will have on price movement. They then enter the market and use their estimations to try to make profitable trades.
Currencies Affected by the NFP
Because the data presented in the NFP is an indicator of US employment, the currency that is most affected is the US dollar. In the term of currency pairs, the most commonly affected pairs are EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF and others.
That said, you should keep in mind that the non farm payroll reports can affect any currency pair, including less common pairs, as the market is alterable and fluctuating. Even if you’re not trading the US Dollar, your other trades might still be affected by market volatility during NFP announcements.
Why Trade the NFP
Because the market is particularly volatile immediately after non farm payroll announcements, you will usually see large tradable movements in the forex market at these times. You should also consider the fact that many market participants focus on the NFP report, and this creates a liquid trading environment for all traders who are actively looking to trade the news.
However, trading immediately after the nonfarm payroll announcement can be risky. Sometimes traders decide to wait for the market to put a price on the required information, instead of speculating on directional movement, as this can provide better results. Once the initial reaction subsides, and the subsequent market volatility subsides, then the market participants will be responsible for reflecting what the numbers really mean with regards to the economy.
Tips For Trading the NFP
Here are some tips to remember when using NFP data in your trading:
- NFP data is always published on the first Friday of each month, so keep note of when to expect it.
- The publication of the data is accompanied by exorbitant volatility.
- Any currency exchange may be affected by such data, whether its related to the dollar or not.
- Use an appropriate leverage when trading.
With these tips, you can plan ahead, manage your risk, and learn to trade in volatile market conditions.
Final Thoughts
The nonfarm payroll report (NFP) is a key economic indicator in the United States. It has a significant impact on the market, affecting the value of the USD, as well as many other currencies. It’s important to know what it is, when it’s released, and how to manage your trades during NFP announcements.
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