The US economic calendar is stacked with many events throughout the month but none is more anticipated that the release of Non-Farm Payroll figures. Non-Farm Payrolls also known as NFP, is reported monthly by the US Bureau of Labor Statistics to give a timely glimpse into employment changes inside of the United States. Ultimately this report can give traders insight into whether the US economy is expanding or contracting while directly influences the decisions of policy makers such as the US Federal Reserve. With this in mind let’s take a closer at this news event, so we can better understand NFP and its potential impact on marks.
First, NFP looks specifically at net changes in employment as jobs are created or subtracted in an economy in any given month. The term Non-Farm is used since farm / agricultural workers are not included in the employment count. The decision to not include agricultural jobs lies in these jobs being largely seasonal that could possibly produce small temporary shifts in labor reporting. For this reason certain government employees, private household employees and nonprofit organization are also not included in the count. Below we can see a composite of past NFP events through 2008. These numbers have been relatively stagnant over the past year, so traders often focus on small changes in NFP for direction, which often causes market volatility. Let’s look at a particle market example.
As the most comprehensive employment number released in the United States, NFP numbers have been known to produce volatility in the Forex Market. Below we can see what occurred during last month’s NFP release on a EURJPY 5min chart. NFP was released at 8:30 am ET and the numbers came out in line with expectations at 114k. During this time the EURJPY spiked as much as 76 pips over the course of an hour. That is nearly 75% of the EUR During this fast movement traders have the opportunity to take advantage and trade the market volatility.
Traditionally there are many ways of trading the news including breakouts , news fades, and trading market dips. Trading NFP can be an exciting and often profitable pursuit for traders willing to enter into a volatile market. Regardless of the strategy taken, it is always important to keep an eye on risk / reward levels while minimizing the use of leverage in case the event volatility moves the market against your trade. The next NFP announcement is set to take place this Friday November 2nd at 8:30 am New York time. With this in mind, traders should expect increased volatility and plan their strategy for the day accordingly.
---Written by Walker England, Trading Instructor
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