Have you heard of the US NFP or US Non Farm Payroll Report? Ever wondered how it affects your forex trading? This is a significant economic data release event and has the potential to cause volatility in the forex market.
How US Non Farm Payroll Works?
The US Non-Farm Payroll is data released by the U.S. Bureau of Labor Statistics on a monthly basis, usually on the first Friday. This report represents the total number of employed US workers, excluding the following employees:
– general government employees
– private household employees
– employees of nonprofit organizations which provide assistance to individuals
– farm employees
Besides employment data, it also leads to the computation of the unemployment rate. Estimates on the average work week and average weekly earnings of all non-farm employees are derived too.
Why Is The US Non Farm Payroll Important?
As the US Non-Farm Payroll Report represents around 80% of the workers in the US, it is often used as a barometer of the US economy. Furthermore, employment and earnings ultimately affect the purchasing power of consumers which leads to retail sales. The bread and butter of an economy.
The US government uses this information to guide their economic policies. Therefore, many analysts and traders keenly observe the US Non-Farm Payroll developments for insights on future monetary policies.
US Non Farm Payroll Impact On Forex Trading
The US is a global economic power and it’s influence spreads across many financial markets. During the release of the US NFP, volatile moves of 100 or more pips within minutes have been known to happen. This is especially so if the data released is not as per expectations. Find below a 1 min chart of a currency pair taken on a US Non-Farm Payroll Report release day from the moment of release to an hour later. The volatility is notable.
The wide range of price action seen above could have easily taken out forex trades on both sides.
Further Analysis Provided Historical Insights
We track the US Non-Farm Payroll and it’s impact on a number of currency pairs as part of our premium analysis. The data suggests that regardless whether the US NFP performed better or worse than expected, the ability to predict the resulting price action is no better than a game of chance. After more than a decade of forex analysis, we are of the opinion that one should avoid trading during the US Non-Farm Payroll. If you are already in a forex trade position, it should be one that is planned for a medium or long term execution with proper risk and money management.
Readers who are subscribed to our premium analysis should refer to the US Non-Farm Payroll Analysis after each event. In this analysis, you can see how the major currency pairs fared against a better or worse than expected US NFP. While you may not discern immediate predictions, the historical color shaded data may reveal trends. These can be leveraged upon to gain insights to the sentiment and economic climate of a currency pair.
The Bottom Line
Forex traders often fail due to the inability to appreciate the underlying sentiment and economic climate. By understanding what the US Non-Farm Payroll event is all about, you should be better equipped to make informed decisions.
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