Global economic indicators have a significant impact on the financial markets, including the currency markets, which makes it essential for traders to keep an eye on these indicators. One such important indicator is the US Non-Farm Payroll report or the NFP, which represents the total number of paid workers in the US, minus farm employees, government employees, private household employees and employees of non-profit organisations. The report is one of the biggest moving factors for the forex market and thus needs to be analysed properly.
Awaited by traders, investors, analysts, funds and speculators alike, the report can cause large swings. Here’s a look at some important things one should keep in mind while trading the NFP report.
Analysing the NFP and Using it to Trade
The NFP report is generally released on the first Friday of every month at 8.30 PM EST and is an excellent indicator of the US economy and its labour market. Higher payrolls mean more job additions, indicating a healthier US economy. Similarly, a lower payroll is negative for the country’s economy and likely to have a negative impact on its currency.
Trading news releases like the NFP can be very profitable, while also being simultaneously risky. So, what should traders do?
- The first tip for trading the NFP is that traders should have a solid understanding of the employment conditions in the US. This will make them more confident and help in understanding the real impact of the report. So, stay updated on news related to the US employment scenario.
- NFP is a short-term market mover and its impact only lasts a couple of hours. So, traders wishing to take advantage of the market movements, following the NFP release, must act within the first two-to-three hours.
- It is not essential that traders venture into trades immediately after the release. They can wait for the speculators to subside and capitalise on the real market move. This will allow traders to capture rational movement in prices after the release of the NFP report and not be part of the irrational volatility, which is generally seen in the first few minutes after the announcement.
- Traders should approach the trade after the NFP from a logical viewpoint, rather than simply anticipating the directional movement.
- One thing traders need to remember, is that the NFP report affects almost all major currency pairs, although the GBPUSD is the most affected. This means one can trade in any currency pair, whether USD is a part of it or not, since most economies are impacted by the US economic scenario.
- Traders need to wait for the market to digest the NFP report’s significance and reflect on its actual impact before entering a trade. This will help them avoid getting in too early, besides decreasing the probability of being whipsawed out before a firm direction has been identified.
In most situations, it is best to do nothing in the first 15 minutes after the release of the NFP report and take a decision after that using a good trading system that can provide accurate entry signals. Of course, we encourage traders to understand the risks and implications of trading a highly volatile event and to speak to our team for assistance.
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