What is NFP, and How is It Traded in Forex?

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EnclaveFX
Aug 05, 2022
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Forex trading and the NFP: Key Discussion Points


lThe currency market is volatile when Non-Farm Payrolls (NFP) releases occur.

lNFP calculates the net changes in employment.

lTo get ready for NFP announcements, forex traders use an economic calendar.


 Describe the NFP.

One of the most important economic indicators for the US economy is the non-farm payroll (NFP) data. It shows the number of new jobs created, excluding those at farms, government, private households, and charitable organizations.


In the FX market, NFP releases typically result in significant changes. The NFP data is public at 8:30 AM ET on the first Friday of every month. In this essay, we'll explain how to use NFPs in economics.


HOW IS THE NFP IMPACTED ON FOREX?

NFP data is significant since it is issued each month and serves as a pretty accurate gauge of the status of the economy at the time. The Bureau of Labor Statistics is the source of the statistics, and an economic calendar lists the date of its upcoming release.


A crucial indication for the Federal Reserve Bank is employment. When unemployment is high, monetary policy is often expansionary (stimulatory, with low-interest rates). An expansionary monetary policy aims to boost both employment and economic output.


Therefore, policymakers will attempt to stimulate the economy if the unemployment rate is higher than usual because they believe it to be below its potential. Lower interest rates are part of a stimulative monetary strategy, which also decreases demand for the dollar (money flows out of a soft, yielding currency). See our post on how interest rates affect forex to see how this works precisely.


Data releases like the NFP must be handled carefully by forex traders. A stop-out could occur for traders due to the abrupt rise in volatility. Spreads rise along with volatility, and rising spreads might result in margin calls.


WHAT CURRENCY PAIRS ARE NFP AFFECTED BY THE MOST

Your currency pairs that include the US Dollar (EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, and others) are most impacted by the data release because the NFP data is a leading predictor of American employment.


When the NFP is released, other currency pairs also exhibit an uptick in volatility, and traders must be mindful of this because they could be stopped.


DATES FOR NON-FARM PAYROLL RELEASE

The NFP data is typically made public by the Bureau of Labor Statistics on the first Friday of every month at 8:30 AM ET. On the Bureau of Labor Statistics website, you may see the release dates.


We advise employing a pullback strategy rather than a breakout approach due to the volatile nature of the NFP release. Traders should wait for the currency pair to retrace before entering a trade using a pullback strategy.


We predict the US dollar will weaken using the same scenario as earlier (NFP findings 20k versus 180k predicted). We utilize the EUR/USD as an example in the following. We expected the EUR/USD to rise because the NFP statistics came in worse than anticipated.


TOP TIPS & ADDITIONAL READING FOR TRADING THE NFP DATA RELEASES

When using NFP data releases to guide your forex trading, keep the following in mind:


lEvery month on the first Friday, NFP data is made public.

lSpreads are expanding, and volatility rises when the NFP data is released.

lSpreads may widen, and volatility may rise in currency pairs unrelated to the US Dollar.

lTrading the release of the NFP data can be risky because of the rise in volatility and the potential widening of spreads. 

lWe advise applying the proper leverage or none to combat this and prevent getting stopped.