How to Trade NFP News in the Forex Market | Full Guide

The Nonfarm Payroll (NFP) report is an important economic indicator that shows the employment changes in the U.S. economy. It significantly impacts currency prices, especially those paired with the USD. The report can lead to sudden price movements hence, understanding how to trade NFP news can help traders capitalize on the market volatility that happens upon release of the report. Keep reading to know more about how to trade NFP news.

What is Non-Farm Payroll (NFP) News?

Nonfarm payroll news is the monthly economic report released by the United States Bureau of Labor Statistics. It measures the number of workers in the U.S., excluding active military service members, self-employed, private households, and non-profit workers. The data collected gives insights into the overall health of the U.S. workforce and economy.

When is the NFP News Published?

The NFP news is always published on the first Friday of every month at 8:30 AM ET by the United States Bureau of Labor Statistics (BLS). It is one of the most watched economic indicators in the United States. It comprises the data from the previous month and revisions of prior reports. The timing enables traders and analysts to respond to the data upon release. 

What is the Importance of The NFP News?

The following are some of the importance of the NFP news:

Economic Indicator

NFP news reflects employment trends, such as the number of jobs lost or included in the U.S. economy. There is a relationship between employment trends, consumer spending, and economic growth. This is because an increase in the employment rate will lead to an increase in individuals with incomes, influencing consumer spending and boosting GDP.

In contrast, a high unemployment rate can lead to reduced consumer spending and slow economic growth. Hence, a strong NFP forex report shows a positive economic expansion, while a weak NFP report suggests a potential economic drain of the USD, which will impact currency pairs like EUR/USD, USD/JPY, and GBP/USD.  

Global Economic Markets

Since the U.S. economy is a major player in the financial market, the NFP results can also influence global trades, commodities, and emerging markets. A sustained positive change in the U.S. job market can influence investor confidence, thereby increasing economic expansion. This can influence the USD and currency pairs positively in the long run. 

Market Sentiment

NFP news can also influence the overall market sentiment, increasing investors’ risk appetite and confidence. Traders tend to take more risks when there is an indication of a strong economic system, like positive employment data. This can then lead to bullish movements in riskier assets. 

Market Volatility

The release of the NFP news also causes high volatility in the forex market. Most traders watch the news closely and compare the actual figures to the forecasts to be able to take advantage of the market swings and make profits. Traders often leverage these sudden market movements in short-term trading strategies like scalping.

Monetary Policy Implications

The U.S. Federal Reserve also monitors the NFP data as it considers its reports when determining monetary policy like interest rates. A strong NFP report may lead to better monetary policy and increased interest rates. This can strengthen the USD, while a weak report would lead to a decrease in interest rates, which can weaken the USD.

Trading Opportunities

In forex trading, the NFP news is one of the most high-impact news releases. It offers significant trading opportunities, especially when the released reports differ from market expectations. Traders use strategies like trend-following to capitalize on the sudden post-release market shifts. 

How to Interpret The Non-Farm Payrolls

As a trader looking to trade the NFP, understanding and being able to interpret the reports based on their implications on the financial markets and economy is essential. Here’s a detailed guide on how to interpret the NFP report:

• Understand the Headline NFP Number (Employment Growth): The total number of jobs created or lost is one of the most sought-after reports of the NFP. A higher NFP figure suggests that the economy is growing, leading to the strengthening of the USD because it increases the expectation that the Federal Reserve might raise interest rates. 

Likewise, a lower-than-expected NFP number suggests economic weakness. This may cause the USD to weaken as it could signal that the Federal Reserve may lower interest rates to stimulate the economy.

• Know the Unemployment Rate: The rate of unemployment shows the proportion of the labor force that is currently unemployed. This percentage provides the context for the headline number. 

• Average Hourly Earnings (Wage Growth): The changes in wages can also signal inflationary pressures in the economy and influence consumer spending behavior. 

• Revisions to Previous Data: The revisions to the past NFP data can also influence market sentiment. An upward revision shows a strengthened confidence in the labor market, which can offset a weaker current report. In contrast, a downward revision shows weak confidence in the labor market, even if the current report appears strong. 

NFP News and their Influence on Currency Pairs Explained

When the NFP deviates significantly from the forecast, it influences the currency pairs involving the USD. Here’s how the NFP news influences currency pairs:

• EUR/USD: This is one of the most traded currency pairs, the NFP news can have a large impact on the EUR/USD. A strong U.S. employment data could lead to a stronger USD and a decline in EUR/USD.
• GBP/USD: As with EUR/USD, positive NFP results will lead to a strengthened USD, which will result in a decrease in GBP/USD.
• USD/JPY: A stronger NFP report often boosts the USD and thus can lead to a potential rise in USD/JPY. 

Steps to Trade NFP News in The Forex Market

Here is a step-by-step guide on how to trade NFP news in the forex market:

Step1: Understand the NFP Impact

Understand the NFP news and its impact on the forex market, especially on major currency pairs like USD/JPY, AUD/USD, and EUR/USD. 

Step 2: Monitor Market Reaction

After the release of the NFP data, observe the shift in the market, as significant deviations from forecasts can lead to sharp price movements. Prepare for high volatility and use stop-loss orders to protect your capital against unexpected price shifts. 

Step 3: Choose a Reliable Broker

Select the right broker based on your trading needs. At WR Trading, we’ve reviewed some of the best brokers for NFP news trading, and they are:

FP Markets

FP Markets is a broker known to offer tight spreads, thereby reducing trade costs during sudden price movements. They also offer fast trade executions, ensuring orders are filled fast without huge slippage. These features are essential for NFP trading, where high volatility can lead to sudden price changes.

Vantage Markets

We also reviewed Vantage markets and saw that their low latency trading ensures quick trade execution during NFP release. It reduces slippage and enhances the entry position. Vantage also has competitive spreads, which minimizes trading costs, making it an ideal option for scalping and breakout strategies. 

RoboForex 

RoboForex is also another great option for NFP trading. It allows traders to maximize the sharp NFP-induced price movements with little capital. They have diverse account types like Prime, ECN, R StocksTrader, ProCent, and Pro. These diverse accounts have features that cater to different trading styles like hedging and scalping, which are essential during NFP’s volatility. 

Step 4: Prepare your Trading Plan

Here, you identify key support and resistance levels using technical analysis. Set your pending orders (buy stop/sell stop) near breakout zones based on your preferred trading strategy. Choose your risk-reward ratio and adjust your trading position sizes according to your plan. 

Step 5: Identify Key Levels

Use a 4-hour or daily chart to mark high and low levels some minutes (15 mins) before the NFP release. You can use this range to set entry points for trades based on your breakout strategies. 

Step 6: Trade Execution

Execute your trades based on your pre-determined strategy. For instance, if the NFP report shows good job growth, you can buy USD against other currencies like EUR or GBP. You can set take-profit levels based on a reward-to-risk ratio. For example, if you set stop-loss at 30 pips, aim for a profit target of 60 pips.

Strategies to Trade NFP News in Forex

At WR Trading, we’ve also analyzed some of the strategies on how to trade NFP news in forex, they are:

• Straddle Strategy: Here, you can place pending buy-stop and sell-stop orders on either side of the market before the NFP release. Upon news release, one of the orders will activate, allowing you to profit from the sharp market movement while canceling the other order. 
• Range Breakout Strategy: In the breakout strategy, you can establish a range around the price before the NFP release. Afterwards, enter a position once the price breaks out of this range using one-cancels-other orders. 
• Trend Following Strategy: Upon release of the NFP results, if the report supports an existing market trend, enter the market following the trend’s direction to gain profit. 
• Scalping Strategy: This is a short-term strategic approach to take advantage of sudden price movements after the NFP release. It is a strategy best executed with good brokers with fast execution and low spreads like FP Markets, Vantage, and RoboForex. 

Mastering NFP News: A Key Economic Event Each Month 

NFP news is a key economic event each month in the U.S that influences USD-related currency pairs in various ways. When the report indicates a positive position, it strengthens the USD, and if it shows a negative trend, it weakens the USD. Hence, to trade the NFP news, it is important to understand and interpret the report. 

Frequently Asked Questions on NFP News Trading