What is NFP and how does it affect the Forex market?

That means that, for example, if the headline reading results in 150,000, the market would barely react. The headline figure, expressed in thousands, is an estimate of the number of new jobs added (or lost, if negative) in a given month. Regardless of the danger, volatility is a trader’s best friend as it is hard to profit when the market is not moving. This fact is especially true for forex trades, where volatility can drive significant profits. To get a feel for the employment situation, it’s good to review the history of previous NFP releases. If the labor market is growing, that means more people are making money, and the more spending there will be.

Inflation tracker: Service prices are holding up

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The Chairman of the Fed, Jerome Powell, has long said the central bank needs a “weaker” labor market, meaning that the economy creates fewer jobs, to trim interest rates. The Forex (FX) market pays extra attention to the US macroeconomic figures, as they reflect the health of the world’s largest economy. Employment data is particularly relevant because of the Federal Reserve (Fed) mandate. In simple terms, it is a measure of the number of jobs added or lost in the U.S. economy, excluding the agricultural sector. The report includes data on various industries such as manufacturing, construction, and healthcare, making it a comprehensive indicator of the overall employment situation in the country.

What to expect from the October NFP report?

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What is Non-Farm Payroll (NFP)?

• Trading post-NFP release is less risky because traders avoid the initial NFP volatile price swings.
• By controlling risk with a moderate stop, you are poised to make a potentially large profit from a huge move that almost always occurs each time the NFP report is released.
• The Non-Farm Payroll report persistently causes high volatility in financial markets.
• Traders and investors closely monitor this report as it provides valuable information about the health of the economy and the potential future direction of interest rates.

A strong labor market oftentimes means the economy is performing well and allows the Fed to raise interest rates if inflation is running hot. If the economy is weakening and heading into a recession, negative NFP reports could lead the Fed to consider cutting interest rates. One of the biggest drivers in the forex market is the interest rate differential between the currencies of two countries in foreign exchange markets. Since the US dollar is the world’s reserve currency, the effective federal funds rate (EFFR) is critical in determining how attractive the dollar is with investors. If the Fed funds rate is much higher than its major trading partners, this has a large impact on forex rates that could keep the foreign investors piling into the greenback.

A high reading is seen as a positive (bullish) for the dollar, while a low reading is seen as negative (bearish). An anticipated shift in the U.S. dollar supply or demand primarily affects the main trading partners of the U.S., like the EU, U.K. The most affected currency pairs would probably be EUR/USD, GBP/USD, USD/JPY, AUD/USD and USD/CHF. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that ironfx review support each other on our daily trading journey. Higher employment usually leads to higher interest rates because of central banks’ monetary policies aimed at balancing inflation with growth.

A positive NFP report indicates a significant job increase and a strengthening US economy. Traders interpret positive NFP data as bullish for the USD and increase their expectations of higher interest rates from the Federal Reserve (FED), leading to traders buying the currency. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Academy.

If the unemployment rate drops or manufacturing payrolls rise, currency traders will side with a stronger dollar, which is good for the U.S. economy. If the unemployment rate increases and manufacturing jobs decline, traders will pass on the U.S. dollar for other currencies. The nonfarm payroll report impacts forex and day trading based on expected or actual results. Traders generally view an addition of more than 100,000 as an indicator of a growing economy and an addition of fewer than 100,000 jobs as an indicator of a declining economy.

Many Forex currency traders wait for this initial post-NFP volatility to subside before placing trades when the market is calm and shows a clear trend direction. Best macd settings for day trading Experienced traders may choose to fade the NFP reaction if they anticipate an overreaction and take a position opposite the initial. Trading volume during the NFP week in Forex typically decreases the closer it is to Friday and then drastically increases after the NFP data is released.