Introduction
The full meaning of NFP is Non-Farm Payroll (NFP). The NFP report is released on a monthly basis by the US Bureau of Labor Statistics, and it has a very strong impact on the Forex market.
NFP is used to get the total number of jobs that have been added or lost in the US economy, although some sectors like farming, private households, government workers, and non-profit organizations.
In this blog post, I will be giving a detailed article about NFP, ranging from how it affects the country’s economy, how it affects the Forex market, and how to trade it profitably as a trader.
What is NFP?
NFP is an economic indicator released monthly by the US Bureau of Labor Statistics to measure the number of jobs created within the month.
Traders monitor NFP data closely so as to make better trading decisions on currencies that have been paired with the US Dollar.
How Does Non-Farm Payroll (NFP) Affect the US Economy?
- NFP is used to check the overall health of the US economy. When the NFP number is high, it shows that the country is experiencing a good level of economic growth; this positive growth encourages more job creation and consumer spending power. But if the NFP number is low, it shows economic stagnation, which tends to reduce job creation and consumer spending power.
- The Federal Reserve (FED) always pays close attention to the NFP because it aids them in regulating the interest rate of the country. If the NFP values are high, showing an increase in job creation and wages, the FED tends to increase the interest rate to make sure that inflation is under check. Conversely, if the NFP value is low, the FED tends to reduce interest rates, which encourages economic growth.
- NFP has a very huge impact on the financial markets, like Forex, stocks, commodities, etc. For instance, if the NFP value is stronger than expected in the US, it shows the US dollar has gained some strength over any paired currencies. But if the NFP value is weak in the US, it shows weakness in the dollar over any currency that is paired to it.
- NFP is used by business owners and investors to make strategic decisions. For example, when the NFP values are high, investors and business owners tend to invest in new projects and hire more employees. On the other hand, if the NFP data is low or weak, it scares business owners and investors away, reducing investments, job creation, and hiring rates.
How Does Non-Farm Payroll (NFP) Affect the Forex Market?
- NFP directly has a strong direct impact on USD pairs. When the NFT data is high, traders and investors seem to buy more US dollars, but if it’s low, it signifies a weaker economy, which will scare away investors and make the US dollar depreciate.
- Each time the NFP data is released, currencies that are paired with USD experience a high volatility. Short-term traders scalp out their profits and exit, while long-term traders make use of the NFP data to make the possible adjustments needed.
- Apart from the forex market, NFP also has an impact on stocks and commodity prices. If the NFP data is strong, it boosts the confidence of investors with the US economy, making them invest in their stocks. Conversely, if the report is disappointing, investors will be pushed to move to other countries’ stocks.
How Can a Trader Trade the NFP Profitably?
- First, a trader should understand how NFP data works in the US economy, the higher the data, the stronger the US Dollar, but the lower the data, the weaker the US Dollar.
- As a trader, you need to have a strategy for your entries and exits. This will help you prevent emotional trades.
- Risk management is the top priority of every successful trader. Make sure you calculate your risk, then risk what you can afford to lose.
- Understand and follow the market trend, and do not trade if the market is too unpredictable.
Conclusion
The Non-Farm Payroll is essential for both Forex traders and investors, as it provides enough information for analyzing the health of the US economy.
For traders who wish to trade the NFP news, it’s best to approach it with a calm mindset, a clear strategy, and proper risk management. Have a strategy that will guide your entries and exits; this will help reduce emotional and impulse trading.
N/B: I’m not a financial advisor, as forex trading can be risky.