Nonfarm Payrolls (NFP) is an important indicator of the US’ labour market. It’s most closely followed among traders since NFP has a significant influence on major assets.
Nonfarm Payrolls shows the level of unemployment. The higher the number, the more people are employed.
Why should I pay attention to a report from the US?
Since USD is one of the most important currencies in the world, it can and will influence many currency pairs and other trading instruments. Every potential change counts when we talk about the economy as a whole.
How do they calculate NFP?
This indicator is based on the reports of the companies (excluding the farming ones). NFP includes newly created employment vacancies and does not include already existing vacant positions.
How do you use it?
Comparison of this indicator’s value throughout time can help you monitor the economy’s growth or stagnation. For instance, in summer, the number of employment vacancies in tourism is supposed to grow.
When do we get this report?
Every first Friday of the month, the US government releases Nonfarm Payrolls. It’s the last day of the trading week, and everyone has at least two days to prepare their trading strategies.
Why is it so important?
The government should strictly monitor the employment rates since it’s one of the best indicators of the country’s economy. One of the US Federal Reserve System’s goals is to provide the country’s population with vacancies. Low unemployment rates mark the wellbeing of the country’s economy, which attracts foreign investors. More employment vacancies also mean that the banks can raise their interest rates.
Bigger unemployment rates show the stagnation of the economy, do not attract investors and eventually lead to even bigger unemployment.
How do I read the numbers in this report?
There is an easy algorithm which can allow you to determine how NPF will influence the economy.
Low unemployment rates -> higher interest rates -> national currency rises in price
High unemployment rates -> low interest rates -> national currency becomes cheaper
Since this report concerns the economy of the US, we can draw a simple conclusion: low unemployment rates lead to USD rising in price, high unemployment rates lead to USD falling in price.
Which assets should I trade?
Most traders prefer the following:
EUR/USD;
GBP/USD;
USD/JPY;
USD/CHF;
USD/CAD;
AUD/USD.
Is it always 100% correct and I should follow it?
News trading demands being careful and considering a lot of other factors. It always includes risks since the market can become volatile.
Anything else I need to know?
It’s important not to dive right into trading immediately after or before the government releases this report unless you’re very well prepared. The market during news releases is quite volatile and less predictable, which may result in an unfavourable result of your deals. While news trading can be attractive for some, many traders prefer to open new positions on Monday after the release of NFP.
Now you can add one more point to your fundamental analysis and step up your trading. Make sure you check the previous reports and consider other indicators, as well as risk management while making your trading strategy.
