NFP stands for Non-Farm Payrolls and it represents critical economic data for the United States. It reveals the state of the United States labor market, and it comes out on the first Friday of every month. As the name suggests it includes government jobs, but not agricultural jobs. Nevertheless, it is the economic release that offers the most accurate picture of the U.S. jobs market.

Why do investors care? For at least two reasons:

  1. The U.S. has the biggest economy in the entire world and whatever happens to the U.S. economy is a benchmark for other economies. When it enters recessionary territory, it is likely that other vital economies in the world will do so too; when it expands, it transmits its positive effect all around the world due to global economic connections.
  2. The Fed has a dual mandate. Besides guarding inflation, it also aims to create jobs. Therefore, it will adjust the interest rate level and change the monetary policy based on changes in jobs data, establishing a threshold for change.

Out of the two reasons, the second one is the most relevant. In Forex trading one of the most important factors is the interest rate level, or what can cause the central bank to change it. Non-farm payrolls is one of the pillars of U.S. monetary policy and the entire world watches the release.

How to Trade the NFP

Trading the NFP release is subject to a lot of volatility. The HFT (High-Frequency Trading) industry buys when the outcome beats expectations, as a positive number implies jobs creation. Jobs creation is a net positive for any economy and its currency too.

So, the first reaction to a positive outcome is a quick move higher. Which may or may not last. Unfortunately, revisions come out quite often. Data from one or two months previous is revised and affects the current release to such an extent that the initial reaction may fade very quickly.

Moreover, investors look at details in the data that accompanies the actual jobs figures released. The Unemployment Rate, for instance, comes out at the same time as the NFP, and it may be that one beats expectations while the other falls short.

Other factors like the Average Hourly Earnings (AHE) or the Labor Participation Rate tend to confuse investors and trading algorithms, as they’ll process all the information in the blink of an eye and start reacting.

Sometimes there is logic to the market’s reaction; sometimes there isn’t. All we can say is that no one has managed to formulate a pattern for trading NFP due to the many factors that influence the release.

Because it is released on a Friday, the market tends to avoid taking chances until the data comes out. As such, the USD pairs mostly move in a range until the NFP “hits the wires.”

Main Takeaways:

  • The NFP is released on the first Friday of every month.
  • The Unemployment Rate is released with the NFP data.
  • It is one of the most relevant pieces of economic data from the US.
  • Trading algorithms drive the initial market reaction.