Nonfarm Payroll Report

1. What is Non-Farm Payroll (NFP)?

The Non-Farm Payroll (NFP) is a monthly report that estimates the net
number of jobs gained in the United States during the previous month,
excluding those in farms, private households, and non-profit organizations.
It is typically released on the first Friday of the month as part of the
Employment Situation report, which also includes the US unemployment
rate, average hourly earnings, and participation rate.

Although its importance has somewhat diminished in recent years, the

NFP remains one of the most significant economic indicators. Financial
market experts eagerly anticipate the headline NFP figure each month,
along with its potential market impact.

2. Why is NFP Important?

The Federal Reserve has the dual mandate of maintaining maximum

employment in the US and ensuring stable prices. As such, they closely
monitor the NFP report when making interest rate decisions. If employment
appears strong, the Fed may consider raising interest rates. Conversely, if
employment is weak, lower rates could be on the horizon.

Since the US is the world's largest economy, any actions taken by the
Fed tend to have a significant impact on global financial markets. However,
their impact is particularly pronounced on the USD, making the NFP report a
closely watched event for forex traders who quickly adjust their strategies
based on the data or attempt to profit from the ensuing volatility.

The NFP data is typically released on the first Friday of every month
at 8:30 AM ET, reflecting data from the previous month.
 3. How Does NFP Data Affect Forex?

NFP releases generally tend to cause significant movements in the

forex market.

If the Fed decides to lower interest rates to address high

unemployment, it reduces demand for the dollar, causing its price to fall.

Conversely, a high number of additional jobs created (generally,

anything in the six figures, but particularly 200,000 or more) is likely to
positively impact USD gains. An exceptionally positive forecast ahead of an
NFP release can have the same effect as NFP data that significantly
outperforms estimates.

It is important for all traders to recognize that even in the

pre-pandemic era, NFP data tended to fluctuate widely. It does not
necessarily follow gradual month-by-month increases or decreases
 4. How FX traders can take action with NFP data

Forex traders with open positions need to be prepared for the

volatility that can occur during NFP data releases. There are a few different
ways to approach trading during these releases, each with its own risks and
rewards.

● One option is to close all open positions before the release. This
is the most conservative approach and will eliminate the risk of
being caught on the wrong side of a sudden price move.
However, it also means missing out on any potential profits if
the market moves in your favor.

● Another option is to reduce position size before the release.

This will limit your potential losses if the market moves against
you, but it also means that your potential profits will be smaller
if the market moves in your favor.

● You can also set stop-loss orders to automatically sell your

position if the price falls below a certain level. This can help to
protect you from large losses if the market moves against you.

● Another option is to use a wider spread. The spread is the

difference between the bid and ask prices for a currency pair.
When volatility is high, the spread can widen significantly. Using
a wider spread can help to reduce the impact of slippage, which
is the difference between the price you expect to get and the
price you actually get when you execute a trade.

Finally, you can avoid trading during NFP releases altogether. This is
the most risk-averse approach and will eliminate the possibility of being
affected by the volatility. However, it also means missing out on any
potential profits.