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What is the NFP and How to Trade it?

Clarissa by Clarissa
6 years ago
in Forex & Market, Stock Market
nfp release

NFP stands for Nonfarm Payroll, a key economic indicator in the United States. The NFP report, which is closely monitored by market players from all over the world, shows the total number of jobs added, minus farm employees, government employees, and employees of non-profit organizations. The U.S. Bureau of Labor Statistics releases the NFP report every first Friday of the month. The report has the following data:

  1. NFP numbers: How many jobs have been created/lost
  2. Unemployment rate: the overall unemployment rate
  3. Hourly wages: average earnings on average

How does it affect the Forex market?

NFP releases can create large movements in the FX market. Because the report is released on a monthly basis, it is a good indicator to determine the current economic condition of the U.S.

The central bank of the U.S., the Federal Reserve, sees employment as a very important indicator. When unemployment is high, the Fed policymakers tend to employ an expansionary monetary policy to stimulate the economy and combat unemployment. This policy includes lowering interest rates.

If the unemployment rate is worse than expected, this often leads to falling U.S. dollar as investors sell their US dollars.

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Volatility

When trading the NFP, traders should take due diligence because of the sudden increase in volatility. When this happens, spreads increase as well. This can lead to margin calls. It will make sense to stay out of the market during early Friday trading hours when volatility is too high.

Which currencies are most affected?

Major pairs that involve the U.S. dollar are most affected by the NFP report. These pairs include the EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF. Other currency pairs may also see increase in volatility and spreads.

Other data releases to watch out for

Besides NFP release, you should also look out for other data releases like the GDP growth, inflation and consumer price index, and interest rates.

Also read: Major Forex Trading Sessions

Tags: forexforex marketnfpu.s. dollarus economy
Clarissa

Clarissa

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