One of the biggest movers in the forex world is nonfarm payrolls (NFP). Combined with events by central banks and interest rate decisions, they can have the biggest impact on prices. However, they have seemed to have a smaller role in the recent past.
At the first Friday of each month, the US Bureau of Labor Statistics unveils its numbers for job creation in the US. The data shows all paid workers except for private households, government workers, farming sectors, and non-profits.
It shows how well the economy is performing. You must follow this important metric if you want to lean to trade. If the numbers harbor any surprises, it can cause huge prices movements. Here is why NFP is important if you want to lean to trade.
How NFP and the Economy Work
On each NFP day, there are three main parts revealed:
1. NFP Numbers – Number of new jobs lost or created
2. Unemployment Rate – The overall rate of unemployment
3. Hourly Wages – The amount workers are earning on average
NFP shows how the labor market in the US is doing, which is a sign of how well the economy is doing and what the future might hold. If the economy is not doing well, companies will not hire any new people and might fire some. As such, those people lose money and will not spend money on things, which means consumer spending slows, which affects the economy more. When things are going well, the reverse happens.
How the NFP Affects the US Dollar
If the NFP numbers are good, more investors will buy the US dollar, since they expect the economy to do better in the future. If the NFP do worse than predicted, the dollar prices fall as investors leave the dollar. However, if you become a Funded Trader, you need to know that you are not trading the news; you are trading how people interpret it.
Trading and Volatility before an NFP
Just before a release, the volatility will dry up in anticipation. Prices will range sideways as the data is being released. However, volatility may arise without notice, which can make it hard to find a profitable setup. It is important to remember this if you aim to be a Funded Trader.
How to Trade NFP
During the active release of NFP data, things get volatile fast. Besides that, prices might reverse as more traders start to consume the data and follow the real direction. If you wish to get funding for traders, be aware of this fact.
Never Trade the Numbers
As a trader getting funding for traders, you never trade the numbers. You only trade how people react to them. There are three numbers watched by traders: The previous numbers, the current numbers, and the forecast numbers. The reaction can be:
1. If the actual number is higher than the previous and forecast – The dollar will likely rise
2. The actual number is less than the previous and forecast – the dollar will fall
3. The actual number is higher than the forecast and lower than the previous on the reverse- a lot of confusion and volatility