Why are US Non-Farm Payrolls Important in Forex Trading?

Why are US Non-Farm Payrolls Important in Forex Trading?

I assume that you as a person engaged in forex trading will often hear the term ” US Non-farm Payrolls “. Or maybe you often take part in the tumultuous market turmoil that emerged when this one economic data was released. You may also already know some tricks that can be used to utilize the data.

This time I will not discuss trading tricks using US Non-farm Payrolls (hereinafter referred to as US-NFP), because I and the team have discussed the topic quite often in various webinars and workshops. This time I was interested in discussing what and what the US-NFP actually was. It could be said that I tried to discuss US-NFP only from its fundamental side without involving technical analysis.

What is US-NFP?

US-NFP is a report that measures the growth of employment outside the agricultural, entrepreneurial, domestic worker, military and intelligence agency sectors. This data was announced by the US Bureau of Labor Statistics along with the report on the unemployment rate, usually every first Friday of each month. In general, this report presents data on changes in the number of workers outside the sectors mentioned above compared to the previous month. Often used to measure the health of the economy.

Although usually announced on the first Friday of each month at 08.30 local time (or 19.30 WIB), sometimes this data publication is postponed to the 2nd Friday if it turns out that the first day of the month is Friday.

This US-NFP data is one of the high impact data. Some traders call it “big data” or  big figure  . The nickname is given because usually the market price (especially forex) moves very volatile and significant when this data is announced. Here is one example of the movement that we captured when US-NFP data was released.

 

How Important Are US-NFP Data?

As mentioned above, the figures published in the US-NFP report are job growth compared to the previous month. In addition, this report also contains many valuable instructions for labor which have a direct impact on the capital market, USD exchange rates and gold prices.

US-NFP is the main tool used to determine the health of the United States economy in general. Total US-NFP covers approximately 80% of the total number of workers who have contributed to the United States’ Gross Domestic Product (GDP).

This data also shows United States unemployment statistics, including general unemployment rates, long-term unemployment rates and young unemployment rates. The level of labor participation is also an important statistical data that is used to measure the actual level of unemployment in the country.

What Is Reported?

The statistical data accompanying the US-NFP report can also be a guide, which sectors recruit the most workers, which recruit the least, also in the sector where there is a reduction in the workforce.

The job sectors included in the list include professional and business services, health services, financial activities, mining, construction, manufacturing, wholesale and retail sales, transportation, information, recreation.

The US-NFP report also provides additional data such as hourly average hours and wages and wage growth. Reports published every month are very likely to include revisions to previous reports.

Usually, the best wage growth occurred in May with the average worker growth of 129,000, while the worst month was usually in August with an average growth of 69,000 workers. History records that 1994 was the best year that recorded 3.85 million workers during the year. On the contrary, the worst year in US-NFP history was in 2009, where there was a reduction in the number of workers by 5.05 million.

What is the effect on Forex?

Forex traders usually monitor various economic indicators to find clues about the direction of a country’s economic growth. In addition to US-NFP, some economic data that are usually monitored are the Consumer Price Index (CPI), housing data (housing starts, new home sales), Gross Domestic Product (GDP), initial claims and the unemployment rate.

Like other economic data, the difference between actual data and estimates will determine the effect of the data on market movements. If the US-NFP figure has increased, then that could be an indication that the US economy is growing, and vice versa. Even so, if the growth rate of US-NFP occurs very high and fast, this can also be an indication that the rate of inflation will also increase.

In the context of forex trading , the actual figures and estimates of US-NFP are taken seriously. If US-NFP is published higher than expected, money market speculators will usually prefer to buy USD, which will usually lead to a strengthening of the USD, and vice versa.

This usually volatile USD movement is then used by forex traders to try to gain profit opportunities. Many trading techniques can be used to take advantage of these opportunities.

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