NFP Is Due Today - What Is NFP, How To Trade It?
- Trade Magnates Team
- Dec 8, 2017
- 2 min read
Trade Magnates - The Non-Farm Payrolls report (NFP) a key economic indicator for the United States. Non-Farm Payrolls is the monthly release of data on the 80% of the US workforce employed in manufacturing, construction and goods. It is intended to represent the total number of paid workers in the U.S. minus farm employees, government employees, private household employees and employees of non-profit organizations.
Why is the Non-Farm Payroll report important?
NFP is a key economic indicator for the US and is widely considered to be the most important regular economic data release. The statistic gives a solid indication of the strength of the US economy, which is the most important single economy in the world offering an indication of where the Federal Reserve might take interest rates in the near future.
The overall number of jobs added or subtracted is an indicator of the health of the economy as a whole, and are part of the Federal Reserve’s mandate on employment – so the FOMC (The Fed - Federal Open Market Committee) will pay attention to NFP figures when deciding whether to raise or lower rates.
For example, a high number of jobs can be taken as a sign of inflationary pressures, which may lead to an interest rate hike. A fall in the number, meanwhile, may indicate a declining economy, increasing the chances of a rate cut.
Interest rates have a major part to play in the movements of forex, stocks and commodities, so the non-farms report can reverberate across global markets in a big way.
How to trade Non-Farm Payrolls
Trading Non-Farm Payrolls can present the opportunity for increased profits on a variety of markets, but the announcement can cause volatility, increasing risk.
The data can be very unpredictable; therefore, it is not an ideal market condition to be trading. You may make big gains in a short amount of time – but most traders may burn out their account sooner, rather than later.
A reading that is stronger than forecast is generally supportive (bullish) for the USD, while a weaker than forecast reading is generally negative (bearish) for the USD.
NFP Effects on Markets:
Forex: A healthy US economy attracts investments from around the world, driving up the price of the US dollar which will affect major currency pairs, such as EUR/USD and GBP/USD.
Indices: Strong employment is a sign that businesses are in a good shape, however, a strong dollar can negatively affect US stocks such as Dow Jones, the S&P 500 and the NASDAQ.
Commodities: If the economy is weaker and the data are negative, traders may turn to safe havens, such as gold and silver