Article Summary:Forex traders wait every month for the volatility created through the NFP economic release. Today we will examine expectations for this Fridays NFP event.
The release of Non-Farm Payroll figures can be an exciting time for Forex traders. As one of the most anticipated releases on the US economic calendar, Non-Farm Payrolls also known as NFP, has been historically known to produce volatility in the market place. The cause being, that during this news release, traders look for insight into whether the US economy is expanding or contracting through new jobs being added to the labor force. With NFP set to be released this Friday at 8:30am ET,today let’s get a better understand NFP and its potential impact on market.
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. Below we can see a composite of past NFP events from September 2011 through present. As you can see these numbers have been anything but consistent, causing problems for traders. With this in mind, let’s look at last month’s event in more detail.
Below we can see exactly what occurred with last month’s price action on a EURUSD 5 minute chart, during the NFP news release. NFP numbers were expected to be released at 185k, meaning analysts expected 185,000 new jobs to be added to the economy. However, at the time of release the NFP number was issued lower than expected at 162k. Traders were left to react to this lower number with the market immediately reacting by selling off the US Dollar. By 8:45am ET, the EURUSD had increased in value as much as 95 pips from the event low at 1.3189.
So what should traders look for this month, with NFP totals again being released on Friday the 6th? Expectations are set for 180k new jobs to be created. Taking a cue from last month’s report, if expectations are missed this could again lead to a selloff of the US Dollar across multiple currency pairs. Likewise, if numbers are better than expected traders will initially look for the US Dollar to rally. Once a direction is established traders can then trade the news using the strategy of their choosing.
(Created using FXCM’s Marketscope 2.0 charts)
Regardless if you intend to trade the news or maybe just sit on the sidelines, remember NFP can be an exciting and will often bring unexpected volatility. If you do decide to trade, stick with your news trading plan and always keep an eye on risk / reward levels while minimizing the use of leverage.
---Written by Walker England, Trading Instructor
To contact Walker, firstname.lastname@example.org. Follow me on Twitter at @WEnglandFX.
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