BLOG Forex Indicators Nonfarm Payroll Data Release
One of the significant fundamental indicators in forex trading is Nonfarm Payroll Data, in short NFP. The NFP indicates the number of jobs from the manufacturing, construction and goods-producing sectors of the U.S. economy that were added or lost over the previous month.
The numbers represent the total amount of paid employees in USA, excluding the following:
1. Private household workers
2. Nonprofit organizations
3. Farms
4. General government employees
The report also includes the estimates on the average work week and the average weekly salaries of all non-farm employees. During the NFP release the market can experience high volatility and therefore create potential profit opportunities to the traders. Not all traders, however, are brave enough to take advantage of NFP release due to increased risk such news portray.
Nonfarm Payroll is commonly known as the “most-wanted” of all the important employment indicators by forex traders. The report is released monthly by the Bureau of Labor Statistics of the U.S. Department of Labor, typically on the first Friday after the end of the month reviewed.
It influences market greatly, especially when the data is relatively off from what was predicted and anticipated. For example, the higher than expected numbers indicate a progress in US economy and therefore can shake up US dollar against other currencies. On the other hand, the lower data is an indicator of poor economic performance and has the opposite effect on the dollar.
The basic idea is:
More Consumers = More Employment = Better Economy
Job Reduction = Weaker Economy
More Unemployment Benefits = Fewer People Have Jobs
Increased consumer spending can also indicate a rise in inflation. In this case the Fed usually raises interest rates.
Recession is noticed when the job reduction continues to persist. Weak economy affects country’s currency, debt markets and equity.
As you can already see, the decrease in employment leads to less consumer spending, which consequently causes even further fall down of the economy.
The difference between the actual non-farm data and expected figures will determine the overall effect of the data on the market. In forex trading the level of actual non-farm payroll compared to payroll estimates is watched extremely up-close. If the actual data comes in lower than estimates, forex traders will usually sell U.S. dollars in anticipation of a weakening currency. On the other hand, traders do the opposite when the data suggests higher outcome than what has been predicted.
