Understanding How Non Farm Payrolls Affect The Forex Market

In the Forex market we can see different aspects that will somehow affect the way we trade and our strategies. The important thing is to find a way to make everything (or almost everything) an advantage.

One important aspect to consider is the non-farm payroll.

What is it?

The nonfarm payroll report (NFP) is a key economic indicator in regards to the United States.

What is the Objective of the NFP?

The NFP seeks to represent the total number of paid workers in the US. With the exception of agricultural employees, government employees, nonprofit organization employees and domestic workers.

This aspect is very important since the non-agricultural payroll report causes a consistently larger rate movement compared to any news announcement in the Forex market. Because of this, we face many analysts, traders, funds, investors and speculators who anticipate the number of NFPs, in addition to the directional movement that this will cause.

When we meet a large number of people who are responsible for looking at this report and interpreting it, even if that number coincides with the estimates, then large changes in rates can be caused. If you trade in this movement, the volatility that may occur may surprise you.

Currencies Affected by the NFP

Because the data presented in the NFP are an indicator of US employment, the currency pair that is most affected is the US dollar, among the other pairs that are also altered are EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF and others.

Traders should be aware that any currency pair they wish to trade can be affected, even if it is not among the most upset, as the market is alterable and fluctuating. Even if the trader is not trading with the US dollar, he may be affected by volatility.

Trading with NFP

Because the market is particularly affected and sensitive to the launch of NFP, you will constantly see large tradable movements in the Forex market as trader. It is also important to consider the fact that most market participants focus on the interpretation of the NFP report, so a clearly favourable environment is created for all traders who are active in the process.

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 and is less risky. Once the initial reaction subsides, then the market will be responsible for reflecting what the numbers really mean in regards to the economy.

Its main objective is to try to capture a rational and more sustained movement once the announcement is made and thus decrease the probability of being stopped by the movement of the arc saw that is normally led by the irrational volatility that reigned the first few minutes after an announcement is made.

Why is NFP Important to you, as a Trader?

For both Forex and CFD traders, this indicator can mean many things, including earnings. It happens that when the reports on employment (number of jobs, employment rate, earnings per hour) exceed expectations, it means that there is a latent economy, which meets the expectations of investors and in some cases exceeds it.

When a situation like this is presented to the trader, an increase of one currency against others must be expected. The NFP has a strong influence on the US dollar, since being its official currency reflects 80% of the US economy.

Summary and Tips for NFP Trading

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 in addition to an increase in the differentials.

– Any currency exchange may be affected by such data, regardless of whether or not they are related to the dollar.

– Use an appropriate leverage when trading, don’t go crazy with it.

The logic behind this strategy of trading the NFP report is based on waiting for a small consolidation, the inside bar, after the initial volatility of the report has subsided and the market is choosing which direction it will go.

By controlling risk with a moderate stop, we are poised to make a potentially large profit from a huge move that almost always occurs each time the NFP is released.

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