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What is NFP? – Things you need to know about Nonfarm Payroll

Finnews24.com - The data on nonfarm payrolls Industry (NFP) is an important economic indicators for the US economy. It represents the number of jobs added, excluding the agricultural sector, government employees, private households and non-profit organizations. Today, let's dive into what  NFP is? - Why is Non-farm Payroll important through the following article .

What is Non-Farm Payroll?  (What is NFP) - Why is it important?

What is Non-Farm Payroll? (What is NFP) – Why is it important?

What is NFP?

So what is NFP ? NFP also called indicator Nonfarm (nonfarm payrolls - NFP) is the first notice of the amount of labor or workload in fine statistically each month by the Ministry of Labor America (United States Department of Labor ) announced.

To make it easier to interpret, nonfarm is a non-farm payroll report that quantifies the number of employed people in the total business community across the country, without accompanying occupations. livestock farming, regional leaders and resellers.

Nonfarm news often reports the number of jobs and comes with the unemployment rate with the hourly wages of salaried workers, so it is considered a key point about the strength of the US economy.

Nonfarm is also crucial to the GDP index, because the higher the number of employed people, the better the economic output of that country is likely to be expected, and vice versa.

Why is news nonfarm payrolls - nfp important to traders?

The reasons that make the nonfarm message board so important to the forex trader.

  • Provide data on the company's production context.
  • Information on how much people earn is a direct reflection of how much they spend on items that are likely to have an impact on gdp.
  • Nonfarm news will support the US Federal Archives (FED) to make its own decisions about increasing or decreasing interest rates in the near future.
  • Nonfarm news directly affects the dollar, the most traded currency globally.
  • When the news of nonfarm is announced, it will be a lever to change direction or constantly guide the business sector to the next step.

Data contained in Non-farm payrolls news

When the Non-Farm Payrolls (NFP) report is released, investors need to pay attention to 3 extremely important parts of the Non-farm report:

3 main sections of the NFP . report

3 main sections of the NFP . report

  1. NonFarm Employment Change (Proportion of non-farm labor force).
  2. Unemployment Rate
  3. Average Hourly Earnings

NonFarm Employment Change

This percentage is collected from US citizens who are of working age between 18 and 65 years old and are working or looking for work. If this ratio increases, it is equivalent to an increase in human resources, supporting the economy to develop better. From there, it will promote a stronger USD and vice versa.

Unemployment Rate

The unemployment rate is considered the most important news in nonfarm bulletin boards, precisely because an economy where this rate is skyrocketing is showing weakness. From there, it brings the weakening of the dollar and vice versa.

Average Hourly Earnings

Average hourly wages show how much people earn increases or decreases. If in a situation where wages increase, citizens will increase their ability to spend money and participate in GDP growth, since the dollar is stronger.

More than that, however, people should also keep an eye out for the fact that high wages can run the risk of triggering a boom. And this is the main thing for the fed to consider for increasing or decreasing profits to rebalance.

NFP . data release date

The nonfarm payrolls - nfp bulletin board is continuously notified by the United States department of labor on the first Friday of the month, at 19:30 (summer time) or 8:30 pm (winter time) by country time. ta.

There is a seasonal variation in the reporting period because the US and many European countries are located much in the northern hemisphere. Therefore, the period between daytime and late at night is seasonally different.

You can easily access to view nonfarm payrolls - nfp news at highly trusted websites like investing , or forexfactory .

Using the same example as above (NFP result is 20k vs expected 180k), assume that the US Dollar will depreciate. In the example below using EUR/USD . Due to the weaker-than-expected NFP data, the EUR/USD forecast is bullish.

EUR/USD NFP data pullback strategy

EUR/USD trading strategy when NFP is announced

How does NFP affect Forex trading?

NFP data is important because it is released on a monthly basis that clearly shows the current state of the economy as released by the Bureau of Labor Statistics.

Employment is a very important indicator for the Federal Reserve Bank. When unemployment is high, policymakers tend to implement expansionary monetary policy (stimulus, with low interest rates). The objective of expansionary monetary policy is to increase economic output and increase employment.

So if the unemployment rate is higher than normal, the economy is said to be operating below its potential and policymakers will try to stimulate it. Stimulus monetary policy leads to lower interest rates and reduces demand for Dollars (money out of low yielding currencies). To find out exactly how this works, check out our article on how interest rates affect forex.

NFP forex reaction

The chart below shows how volatile forex can be after an NFP release. The expected NFP result for March 8, 2019 is 180k (work addition), the actual result is disappointing as only 20k jobs are added. As a result, the Dollar Index (DXY) falls in value and volatility increases.

Forex market reaction to NFP . results

The foreign exchange transactions must be alert to the release of data like the NFP when a sudden increase likely that the transaction is terminated.

As volatility increases, so does the spread and leads to margin calls.

Which currency pair is most affected by the NFP indicator?

NFP data is an indicator of American employment, so USD crosses will suffer (EUR/USD, USD/JPY , GBP/USD , AUD/USD , USD/CHF and others. ) are most affected by data releases.

Other currency pairs also exhibit an increase in volatility as a result of the NFP data and traders should be aware of this as well, as they can be trailed off.

The chart below shows CAD/JPY during the NFP data release. As you can see, an increase in volatility can prevent a trader from leaving their position even though they are not trading a currency pair that is linked to the US Dollar.

CAD/JPY NFP reaction

CAD/JPY's reaction to NFP . results

Notes to keep in mind when trading when NFP news is announced:

  • NFP data is released on the first Friday of every month.
  • The release of NFP data was accompanied by an increase in volatility and widening spreads.
  • Currency pairs that do not involve the US Dollar may also see increased volatility and widening spreads.
  • Trading NFP data releases can be dangerous due to increased volatility and possible widening spreads, so it is advisable to use appropriate leverage or no leverage at all.

Trading method when Nonfarm news is announced

Stay out of the market – The best way

For short-term traders, every time the NFP news is announced, the best option is to withdraw all of the capital. Indeed, the fact that you wait for 2-3 days for the market to reduce volatility, you can avoid countless risks that can lead to account fire when you try to hold on while the Forex market is affected by news.

Trading on news is only suitable for those who are veterans and have more or less experience in the financial field, so it is best to stay by the side and observe the market movements during this period.

“Take a step back but still have a chance to return to shore”

Reckless – The way for traders to take risks

True to the saying "a lot of food",  if you are willing to accept the risk of loss, account fire, traders should note a few things as follows:

  • Have a good level of experience in trading.
  • Estimate the possible loss.
  • Should only trade Scalp, should not hold orders for too long.
  • Have a plan B for backup.

If traders accept the possible risks during this period, they can get quite a bit of profit because the higher the risk, the more commensurate the return.

Summary

Through the above article, Finnews24.com hopes that investors have had a better overview and also know what Non-Farm Payroll (NFP - Nonfarm Payroll) is, from which it will be easier to make make correct choices while trading to take profits effectively.