The non-farm payroll (NFP) report is a key economic indicator for the United States. It is intended to represent the total number of paid workers in the U.S. minus farm employees, government employees, private household employees and employees of nonprofit organizations. The non-farm payroll report causes one of the consistently largest rate movements of any news announcement in the forex market. As a result, many analysts, traders, funds, investors, and speculators anticipate the NFP number and the directional movement it will cause. With so many different parties watching this report and interpreting it, even when the number comes in line with estimates, it can cause large rate swings.

The release of the NFP generally occurs on the first Friday of every month at 8:30 a.m. EST.4 This news release creates a favorable environment for active traders because it provides a near guarantee of a tradable move following the announcement. As with all aspects of trading, whether we make money on it is not assured. Approaching the trade from a logical standpoint, based on how the market is reacting, can provide us with more consistent results than simply anticipating the directional movement the event will cause.

Like any other piece of economic data, there are three ways to analyze the U.S. non-farm payroll number:

A higher payroll figure is good for the U.S. economy. This is because more job additions help to contribute to healthier and more robust economic growth. Consumers who have both money and a job tend to spend more, leading to growth. As a result, foreign exchange traders and investors look for a positive addition of at least 100,000 jobs per month. Any release above—let's say 200,000—will help to fuel U.S. dollar gains. An above-consensus estimate release will have the same effect.

An expected change in payroll figure causes a mixed reaction in the currency markets. Forex investors witnessing an expected change in the NFP report will turn to other sub-components and items to gain some sort of direction or insight. This includes the unemployment rate and manufacturing payroll sub-component. So, if the unemployment rate drops or manufacturing payrolls rise, currency traders will side with a stronger dollar, a positive for the U.S. economy. But, should the unemployment rate increase, manufacturing jobs decline, investors will drop the U.S. dollar for other currencies.

A lower payroll figure is detrimental for the U.S. economy. Like any other economic report, a lower employment picture is negative for the world's largest economy and the greenback. Should the NFP report show a decline below 100,000 jobs (or a less-than-estimated print), it's a good sign the U.S. economy isn't growing. As a result, Forex traders will favor higher-yielding currencies against the U.S. dollar.

The NFP report generally affects all major currency pairs, but one of the favorites among traders is the GBP/USD. Because the forex market is open 24 hours a day, all traders have the ability to trade the news event.

The logic behind the strategy is to wait for the market to digest the information's significance. After the initial swings have occurred, and after market participants have had a bit of time to reflect on what the number means, they will enter a trade in the direction of the dominating momentum. They wait for a signal indicating the market may have chosen a direction to take rates. This avoids getting in too early and decreases the probability of being whipsawed out of the market before it has chosen a direction.

Risk Warning: The above content is for reference only, and does not represent JRFX’s position. JRFX does not assume any form of loss caused by any trading carried out in accordance with this article. Please consult your financial planner for your investment portfolios and manage your own risk.

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