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What is NFP?

How NFP affect the trading market?

Currency pairs to trade during NFP


How to trade the NFP?

NFP is one of the most important economic indicators in every trader’s gallery. This figure carries great significance for traders around the globe as it gives an indication of job growth in the United States.

The report contains many valuable insights that have a direct impact on the stock market, the value of the U.S dollar and the price of gold.

NFP reports are released on the first Friday of every month. It is the data about the previous month that is released. For instance, data for April is released in May and data for May is released in June.

The report causes extreme volatility in the market and often triggers a long-term upward or downward trend for the U.S. dollar.

The difference between anticipated figures and actual numbers reported by the Bureau of Labor Statistics is what determined the impact of the NFP on the U.S dollar. Better employment numbers and the addition of more payroll is usually good for the dollar.

As stated before, NFP affects mostly currency pairs that includes the US Dollar. Some of the currency pairs include:

  1. EUR/USD
  2. USD/JPY
  3. GBP/USD
  4. AUD/USD
  5. USD/CHF

Apart from US Dollar currency pairs, commodities can also be traded because of the inverse relationship between the US Dollar and commodities.

As commodity markets are priced in US Dollars, as the US Dollar gets stronger more commodities can be purchased for the same amount of Dollars, the price of commodities goes down and vice versa. Known as commodity currencies, Copper, Oil and Gold are the most affected.

Market uncertainty is at its highest during the period immediately before the NFP is release. The fact that market direction is unknown, this uncertainty can lead to volatility in the forex market as traders and investors impatiently wait for the release.

Trading during this time carries additional risk, as the markets do not have any solid data to work with prior to the release. Nonetheless, the volatility often seen prior to a major event does present trading opportunities.

Trading before the release of NFP:

For traders, the nature of the global currency market enables them to respond to breaking news related to the currency market as it occurs to maximise profits. Online Trading is, therefore, an exciting and fast-paced avenue to generate significant returns, as well as become part of a global financial venture.

For traders, the nature of the global currency market enables them to respond to breaking news related to the currency market as it occurs to maximise profits. Online Trading is, therefore, an exciting and fast-paced avenue to generate significant returns, as well as become part of a global financial venture.

Trading after the release of the NFP:
As stated earlier, NFP is a major economic indicator and there are strong chances that the currency market will move after the release. Will the US dollar move up or down? That of course, is the million dollar question which nobody can predict, but we can use a general rule to help us make an educated guess:

  • NFP is higher than the estimated → dollar will likely move higher
  • NFP is lower than the estimated → dollar will likely move lower

However, this rule is not absolute, and another factor that we need to keep in mind is the previous release (one month earlier). If NFP showed a higher gain in the current reading compared to the previous reading but fell short of the estimate, the dollar could still rise because the indicator improved in actual numbers, despite falling short of the estimate.

There is, of course, the possibility that the markets will not show much movement at all following a major release like NFP. This could happen if the actual reading is close to the estimate. However, if the reading is significantly higher or lower than the estimate, there is a strong chance that the dollar will respond with some movement.

Closing Line

NFP offers a lot of opportunities to traders if they know how to take advantage of it. We hope that this article will help you trade this short term market mover like a pro. NFP often causes the dollar to react immediately after the release, but in some cases, NFP reading can affect the market for up to 2 to 3 days.