What is NFP and how to trade?


– Reviewed by James Stanley, Dec 1, 2021

NFP and Forex Trading: HEAD TOPICS TO DISCUSS

  • Non-Farm Payrolls (NFP) releases are fueling volatility in the forex market.
  • NFP measures net changes in employment jobs.
  • Forex traders use an economic calendar to prepare for NFP releases.

What is the NFP?

The non-farm payroll (NFP) figure is an important economic indicator of the United States economy. It represents the number of jobs added, excluding agricultural workers, government employees, private household workers, and employees of non-profit organizations.

Historical Results of Non Farm Payroll in the US

NFP releases generally cause major movements in the forex market. The NFP data is normally released on the first Friday of each month at 8:30 a.m. ET. This article explains the role NFPs play in the economy and how NFP release data can be applied to a forex trading strategy.

How does the NFP affect forex?

NFP data is important because it is released monthly, making it a very good indicator of the current state of the economy. The data has been released by the Bureau of Labor Statistics and the next release can be found at a economic calendar.

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

So if unemployment is higher than normal, the economy is considered to be below its potential and policymakers will try to stimulate it. A stimulative monetary policy brings lower interest rates and reduces demand for the dollar (money flows out of a low-yielding currency). To learn exactly how this works, see our article on how interest rates affect forex.

The chart below shows how volatile forex can be after an NFP release. The expected NFP results for March 8, 2019 were 180k (addition of jobs), the actual result disappointed with only 20k jobs added. As a result, the dollar index (DXY) fell in value and volatility increased.

NFP forex response

Forex traders should be wary of data publications such as the NFP. Traders may be stopped due to the sudden increase in volatility. As volatility increases, spreads out do, and increased spreads can lead to: margin calls.

Which Currency Pairs Are Most Affected by NFP

The NFP data is an indicator of US employment, so your currency pairs that U.S. dollar (EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF and others) are most affected by data disclosure.

Other currency pairs also show an increase in volatility when the NFP is released, and traders should be aware of this as well as they may be held back. The graph below shows the CAD/JPY during the NFP data release. As you can see, the increase in volatility can pull a trader out of their position even though they are not trading a currency pair pegged to the US dollar.

CAD/JPY NFP Response

Release Dates for Nonfarm Payroll

Bureau of Labor statistics normally releases the NFP data on the first Friday of each month at 8:30 a.m. ET. The release dates can be found on the Bureau of Labor Statistics website.

Due to the volatile nature of the NFP release, we recommend using a withdrawal strategyrather than a breakout strategy. Using a pullback strategy, tguessers have to wait for the currency pair to bounce back before entering into a transaction.

Using the same example as above (NFP results expected 20k vs 180k), we expect the US dollar to depreciate. In the example below, we use the EUR/USD. As the NFP data came in worse than expected, we predict the EUR/USD will rise.

EUR/USD NFP data pullback strategy

Trading the NFP Data Releases: Top Tips & Further Reading

Here are a few tips to remember when using NFP data releases to inform your forex trading:

  1. NFP data is released every first Friday of the month.
  2. The NFP data release is accompanied by increased volatility and widening spreads.
  3. Currency pairs unrelated to the US dollar may also see increased volatility and wider spreads.
  4. Trading the NFP data release can be dangerous due to the increase in volatility and possible widening of the spreads. To counter this and to avoid being stopped, we recommend using the appropriate leverageor no leverage at all.

Other important data releases to watch out for:

While the NFP generally moves the market, data such as: CPIA (inflation), Fed fund rates and GDP growth are also key data releases.

If you want to learn more about trading the news and data releases, check out our trading the news beginner guide. We also recommend to use our features of successful trader guide to avoid the biggest mistake traders make when trading forex.

Read more about forex fundamentals

We also recommend learning about the role of central banks in the forex market and what: central bank interventions involve.

Use the Referus economic calendar to monitor all key economic data, including central bank speeches and interest rate data. Don’t forget to bookmark our Central Bank Rates Calendar so you can prepare for regular announcements.