NFP and Forex: What is NFP and How to Trade It?

  • May 10, 2021 3:50 AM PDT
    What is the NFP?



      The non-farm payroll (NFP) figure is a key economic indicator for the
    United States economy. It represents the number of jobs added, excluding
    farm employees, government employees, private household employees and
    employees of nonprofit organizations.To get more news about [url=https://www.wikifx.com/my_en]Forex Article[/url], you can visit wikifx.com official website.

    NFP releases generally cause large movements in the forex market. The
    NFP data is normally released on the first Friday of every month at 8:30
    AM ET. This article will explain the role NFPs play in economics and
    how to apply NFP release data to a forex trading strategy.



    HOW DOES THE NFP AFFECT FOREX?

      NFP data is important because it is released monthly, making it a very
    good indicator of the current state of the economy. The data is
    released by the Bureau of Labor Statistics and the next release can be
    found on an economic calendar.



      Employment is a very important indicator to the Federal Reserve Bank.
    When unemployment is high, policy makers tend to have an expansionary
    monetary policy (stimulatory, with low interest rates). The goal of an
    expansionary monetary policy is to increase economic output and increase
    employment.



      So, if the unemployment rate is higher than usual, the economy is
    thought to be running below its potential and policy makers will try to
    stimulate it. A stimulatory monetary policy entails lower interest rates
    and reduces demand for the Dollar (money flows out of a low yielding
    currency). To learn exactly how this works, see our article on how
    interest rates effect forex.



      The chart below shows how volatile forex can be after an NFP release.
    The expected NFP results for March 8, 2019 were 180k (job additions),
    the actual result disappointed with only 20k jobs being added. As a
    result, the Dollar Index (DXY) depreciated in value and volatility
    increased.

    Forex traders must be wary of data releases like the NFP. Traders could
    get stopped-out due to the sudden increase in volatility. When
    volatility increases, spreads do too, and increased spreads can lead to
    margin calls.



      WHICH CURRENCY PAIRS ARE MOST AFFECTED BY NFP



      The NFP data is an indicator of American employment, so your currency
    pairs that include the US Dollar (EUR/USD, USD/JPY, GBP/USD, AUD/USD,
    USD/CHF and others) are most affected by the data release.



      Other currency pairs also display an increase in volatility when the
    NFP releases, and traders must be aware of this as well, because they
    may get stopped out. The chart below shows the CAD/JPY during the NFP
    data release. As you can see, the increase in volatility could stop a
    trader out of their position even though they are not trading a currency
    pair linked to the US Dollar.

    The Bureau of Labor statistics normally releases the NFP data on the
    first Friday of each month at 8:30 AM ET. The release dates can be found
    on the Bureau of Labor Statistics website.



      Due to the volatile nature of the NFP release, we recommend using a
    pull-back strategyrather than a breakout strategy. Using a pullback
    strategy, traders should wait for the currency pair to retrace before
    entering a trade.



      Using the same example as above (NFP results 20k vs 180k expected) we
    expect the US Dollar to depreciate. In the example below, we use the
    EUR/USD. Because the NFP data came out worse than expected, we forecast
    the EUR/USD to appreciate.
  • July 17, 2021 12:32 AM PDT
    Employment is a very important indicator to the Federal Reserve Bank. When unemployment is high, policy makers tend to have an expansionary monetary policy (stimulatory, with low interest rates). The goal of an expansionary monetary policy is to increase economic output and increase employment.

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