The non-farm payroll is part of an important news release in forex trading. It shows the total number of jobs gained in the US which is a strong economic growth indicator. As a result of this, the nonfarm payroll is arguably the most anticipated reoccurring forex news.
As a forex trader understanding the fundamentals behind the non-farm payroll is strongly advised. This is because it will help you make informed decisions when applying it to your trading strategy.
Below we explain what is the nonfarm payroll, its release time, and its effect on the economy and the forex market. You will get a better understanding of the non-farm payroll in forex trading.
What is the Non-Farm Payroll?
The Non-farm payroll is data released monthly which shows the change or increase in the number of jobs in the US excluding household workers, federal government workers, or farm workers hence the name non-farm.
The non-farm payroll data is part of a bigger news release called the Employment Situation Report. The Employment Situation report is one of the Major News Releases presented by the U.S. BUREAU OF LABOR STATISTICS.
The Employment Situation Report presents data obtained from two surveys, the household and establishment surveys.
The household survey provides data on the labor force, employment, and unemployment.
The Establishment Survey provides data on employment, hours, and earnings of workers or employees on non-farm payrolls. The information traders see on the nonfarm payroll report (Economic Situation Report) is obtained from the establishment survey.
The nonfarm payroll is simply a monthly report which shows the number of jobs gained in the US excluding jobs gained in certain sectors of the labor force. The NFP has a high impact on the forex market and the economy. Below we explain the effect of the Non-Farm payroll on the forex market.
How does the Non-Farm Payroll affect Forex?
In the image below, we see a huge change in momentum after the NFP news release at 8:30 a.m. EST. This is the effect of the NFP for that month on the forex market.
As stated earlier the NFP news release shows the number of jobs gained for the previous month. An increase in the number of jobs will signify a stronger USD. But in the US, there will almost always be an increase in the number of jobs.
With every news release, there are forecasts. These are predictions or expectations of the value of the news release. When the actual value of the news release performs better than forecasts, traders read the news as positive news. With the Non-farm payroll, when the actual value of the non-farm payroll is greater than its forecast, traders expect to see a strong USD.
In forex, positive non-farm payroll news should cause bullish movements in USD+++ pairs and bearish price movements in +++USD pairs.
The NFP is a high-impact news which shows the state of the Economy. Traders will attempt to profit from the news release. Traders attempting to take trades at the same time may cause huge price movements in the forex market. After all the initial noise during the news release, the price is expected to move based on the NFP news.
How Does Non-Farm Payroll Affect the Economy?
Economic growth is the increase in the production of goods and services in a country or society. The nonfarm payroll shows the increase in the number of workers in some sectors of the labor force such as manufacturing businesses.
An increase in the number of jobs can signify growth in the economy. This is because it is translated to an increase in production and services rendered. A stronger economy also signifies a stronger USD as explained above.
Hence positive Non-farm payroll news shows growth in the Economy while negative NFP news may signal slowed-down Economic growth.
What time is the NFP
It is very important to know the time of the NFP news release as being some minutes late can cause you to miss out on the NFP release.
The NFP is released usually on the first Friday of every month at 8:30 a.m. EST. It may be increased by 9:30 EST in the early months of the new year.
What is a Non-Farm Payroll in Forex
In forex trading, the non-farm payroll is a very popular news release used by both fundamental and technical analysts to predict the direction of price movement. Forex traders anticipate this news monthly. The news can be gotten from popular news outlets such as Forex Factory.
The NFP can also be obtained from the National Bureau of Labor Statistics. In the forex market, the NFP is seen as positive news when the actual news performs better than forecasts. Forex traders have developed a lot of NFP trading strategies.
The NFP is easily the most popular news among forex traders. Some traders exit their open positions before the NFP release while others anticipate and trade the NFP. At the moment of its release the NFP there is an increase in the volume of USD pairs being traded.
Contrary to expectations the NFP does not always move the market in the direction relating to the news release.
Is the NFP a high-impact Forex news
The NFP is a high-impact forex news as it is one of the major economic releases by the US Bureau of Labor Statistics. Forex traders, beginners to professionals watch out of the NFP.
Price movements during the NFP news release can be a sight to behold.
The increase in spreads, volume, and momentum. You get to see the tussle between the bulls and the bears in 3D. The NFP is an interesting high-impact event. We advise traders who have no NFP trading strategy to desist from trading the NFP.
How does the NFP affect the USD?
The NFP is a US news release and therefore has certain effects on the USD. The normal expectation from the Nonfarm payroll is that a greater NFP value will cause the USD to be stronger. In contrast, negative NFP news will mean a weaker USD. But is that always the case?
Going through years of NFP data to come up with an effective Nonfarm payroll trading strategy. We discovered that the NFP does not always affect the market directly. In some cases, we saw positive NFP news that caused the USD to lose strength.
For example in the image below
We have also discovered that the NFP has a direct effect on the USD 63.6% of the time. This means that the USD gained or lost value when the NFP news was positive or negative 63% of the time respectively. While the value of the USD changed irrespective of the news 36% of the time. That is, the USD fell when the NFP was positive and rose when the NFP was negative 36% of the time.
Some experts suggest that a huge increase in the NFP value may signal inflation and cause the USD to be weakened. This is because an increase in the number of jobs means increased spending. With huge cash in circulation, prices of goods will increase leading to loss of value of a currency.
Frequently asked questions about Non-Farm Payroll
What is another name for Nonfarm Payroll?
The Non-farm payroll obtained from the establishment survey can also be called nonfarm employment or nonfarm earnings. Traders also use the abbreviation “NFP” to refer to non-farm payroll
Is it good to trade during the NFP?
Traders can choose to trade during the NFP if they have a profitable nonfarm payroll trading strategy. However, they should keep in mind that during news releases like the NFP, spreads increase and slippage is most likely to occur.
Which currency pair is affected by NFP?
The NFP is a US news release and therefore affects USD pairs. Some of these pairs include USDJPY, USDCAD, USDCHF, AUDUSD, GBPUSD, and XAUUSD (gold).
How many pips does NFP move?
The NFP candle moves an average of 56.69 pips moving as high as 126 pips and as low as 27 pips. The NFP 4-hour candle also moves an average of 59.627 pips. This presents traders with an opportunity to gain profits from trading the nonfarm payroll.
Can the Non-Farm Payroll cause spikes in the market?
Yes, the nonfarm payroll can cause spikes in the market. From our results, the NFP causes spikes every time the news is released (100%). Spikes are fast price movements that may occur in periods of high-volume trading such as news releases. They can leave wicks in any or both directions.
Why are farmers excluded from non-farm payroll.
Farmers and agricultural workers are excluded from the nonfarm payroll due to high seasonality in the agricultural sector.
Seasonality refers to variations in statistical data that occur at certain times of the year. For example, the Christmas holidays may cause a rise in the purchase of certain goods. Seasonality may affect the accuracy of data.
Conclusion
The Non-farm payroll report is essential forex news. It is usually the first news a beginner learns about even before Fundamental Analysis itself. It can be tempting to try to profit from the NFP based on chance or basically gambling.
While this could work, we strongly advise traders to trade the NFP only when they have a working Non-Farm Payroll trading strategy. This is to ensure they have a consistent way of profiting from the nonfarm payroll and not just hoping for luck.
References
The Employment Situation – US BUREAU OF LABOR STATISTICS
Economic Growth – Investopedia
NFP Trading Strategies – Investopedia