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Understanding The U.S Non-Farm Payrolls

NFP, or Non-Farm Payrolls. You’ve most probably heard of it and if you’re a Dollar lover, probably traded its results too. Undoubtedly, the NFP is one of the US’ most important economic announcements, and should you place yourself on the right side of the trade, potentially a major source of opportunity. Generally, the NFP report is released every first Friday of the month at 8:30 AM (New York Time) or 12:30 GMT.


It tracks the number of people currently employed in US manufacturing, construction, goods and the service industries which essentially account for 80% of the US work-force. The other 20%? Well, it’s comprised of farm workers, certain government agencies, seasonal workers and of course, individuals that work for non-profit organizations. These individuals are not included in the NFP figures.Why is it such a big-deal for traders?


One word. Volatility. Employment figures say a lot about the health of an economy, especially when the report headliner comes in much higher or much lower than analysts’ forecasts. As we have seen time after time, this can and usually does have a sudden and significant impact on the financial markets. This means two things: like you might have guessed the opportunity to trade, but significant risk. It’s our industry’s slogan – with greater risk comes greater reward, so if you steer clear of volatility then perhaps trading the NFP might not be for you, but on the other hand, if volatility wets your appetite maybe it’s time to test the waters.


The question on every trader’s mind is what markets does the NFP impact? The possibilities are many but keep in mind that past performance is by no means an indication of future performance. Having said that, let’s look at the markets most affected by this report. First on our list, Forex, short for Foreign Exchange. Major currency pairs very often move as traders long or short the USD, based on the US economy’s performance.


Some of the most popular major currency pairs that include the Dollar are: EUR / USD, GBP / USD, AUD / USD and USD /JPY (also known as Ninja.) In a like manner, investors might buy or sell stock indices like the NASDAQ or S&P (Standard and Poor) based on the expected future performance of the particular index’s shares.



NFP Japanese Candlesticks Forex


Then we have Gold or XAU as most of you techies know it – the market’s safe-haven. Gold, which is denominated in US Dollars is verymuch affected by the Greenback’s mood. How? They’re inversely correlated, which means when the one goes up the other tends to go down. So, in the case that investors aren’t very confident about the health of the U.S economy, then that would likely trigger a Dollar sell-off which could ultimately send Gold to the skies.



Of course, none of this is carved in stone, as we previously said past movement is by no means an indication of future movement, but we also know that the markets (as with many things in this universe) tend to move in cycles, so next time the NFP is due and results come in lower sparking a Dollar sell-off, you could check your XAU charts for that inverse movement or vice versa. Identify the patterns, understand them and you’ll be well on your way to optimizing your approach to the markets.
Good luck and trade with care.

This article is for educational and informative purposes only and should not be considered as investment or trading advice.