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All About NFP Reports: Here’s how to use the NFP Report for Trading

By XFlow Markets Team Thursday, Feb 16, 2023 | Trading Basics

Nonfarm payroll (NFP) is a report released by the U.S. Bureau of Labor Statistics (BLS) on the first Friday of every month, which provides data on the total number of paid workers in the U.S. who work in non-farm businesses. The report is used as a gauge of the health of the U.S. economy and is closely watched by traders all over the world. In this article, we will discuss the importance of the NFP report for traders, NFP trading strategies, and how to use the NFP report for trading.

Non-Farm Payrolls is one of the most important reports that influences trading all over the globe. It measures the number of workers in the USA, excluding farm workers and workers in a handful of other job classifications. The Bureau Of Labor Statistics measures this by surveying government and private entities all over the U.S. about their payrolls. 

NFP employment is a compiled name for goods, construction, and manufacturing companies in the U.S. It does not include Non-profit organisation employees, farm workers, or private household employees. 

It is an important indicator of the U.S. labor market. It’s very closely followed among traders since NFP significantly influences major assets. It depicts the level of unemployment. A high number signifies that a huge number of people are employed. 

The financial assets most affected by non-farm payroll (NFP) data include the U.S. Dollar, equities, and gold. When the NFP data is released, the markets react rapidly and mostly in an extremely volatile fashion. 

There is a very powerful correlation between the NFP Data and the strength of the U.S. Dollar, which is indicated by the short-term market movement.  

Understanding Non-Farm Payrolls 

Non-farm employee classifications account for nearly 80% of U.S. Business Sectors, according to BLS, which contribute to the Gross Domestic Product (GDP). There are some notable exclusions in addition to farmers, representing a significant majority of the U.S. labor force.

 NFP Report Explained

  • Government Workers : 

Government plays an essential role in the “Employment Situation” report each month, although some government employees are excluded. The government category covers civilian employees. However, it excludes government-appointed officials and army employees. Employees of the Central Intelligence Agency and the Defense Intelligence Agency are also excluded. 

  • Private households :

Domestic household workers and Private household employees are not included. 

  • Proprietors : 

Proprietors are generally unincorporated business owners. This includes self-employed workers and sole proprietors without registered business incorporation. 

  • Non- Profit employees: 

This sector is large; the non-profit sector is not considered in the non-farm payroll statistics. 

Analysing Monthly Report 

BLS releases closely followed the “Employment Situation” report monthly on the first Friday of the month, subsequent to data reporting collection. It is always released at around 8:30 am. 

The Household and the Establishment Survey are two comprehensive surveys whose results are compiled to form one extensive monthly report, namely “employment situation”. 

The household survey provides details on employment demographics and the unemployment rate report. BLS’s Establishment Survey segment of the “Employment Situation” report is also known as the non-farm payrolls report. It provides the headline number of new non-farm payroll jobs added within the national economy. 

Household Survey

Key Elements Of the Household Survey include :

  • The Unemployment rate
  • Unemployment rates by gender.
  • Unemployment rates by race.
  • Unemployment rates by education.
  • Unemployment rates by age.
  • Reasons for unemployment 
  • Participation rate.

Establishment Survey

The establishment survey segment of the “Employment Situation” report provides details on non-farm payroll additions known as the non-farm payrolls report. Key elements of the establishment survey consist of the following. 

The total number of non-farm payrolls added by entities for the reporting month. 

Non-farm payroll additions by industry category:

  • Durable goods, non-durable goods, services, and government.
  • Details on hours worked.
  • Details on average hourly earnings. 
  • Economic Analysis 

Economists and policymakers compile all of the available data for examining the current state of the economy and predicting future levels of economic activity. The unemployment rate and the non-farm payrolls number are the “Employment Situation” headlines. The report consists of many invaluable insights into the stock market, labor force, the value of the U.S. Dollar, the value of treasuries and the price of gold.

Economists analyse the Household survey data when considering the trend in the participation rate, unemployment rate, and other trends that may be associated with demographics. With detailed sector segregation, non-farm payrolls report offers valuable information on various sectors. 

Various kinds of analysts might add sector-specific non-farm payroll data to their analysis. This breakdown can often be used by stock analysts reporting on earnings releases and stock sectors. 

Statistics in Non-farm payroll show which sectors are expanding and contracting. Expanding sectors will contribute more payrolls, and contracting sectors may have low or negative contributions showing reduced job availability. 

Economists find Wages and Wage growth to be highly important, which are found in the establishment survey. Historically, with an average of 129 000 additional jobs, the best month for wage growth is usually May. In contrast, 69,000 jobs were added in August, which is the worst month.

For non-farm payrolls, 1994 was the best on record, with 3.85 million jobs added. 2009 was the worst statistical year for the non-farm payroll count as the job force lost 5.05 million jobs. In 2018, payroll employment growth was tolerated at 2.6 million compared to additions of 2.2 million in 2017 and 2.2 million in 2016. 

Importance of NFP Report for Traders

Non Farm Payroll Report in Trading

The NFP report is considered one of the most important economic indicators in the financial market. It provides valuable insights into the state of the U.S. labor market, which is a key driver of the U.S. economy. The NFP report can impact the market in a number of ways, including:

1. Impact on interest rates

The Federal Reserve uses the NFP report to make decisions about interest rates. If the report shows strong job growth, it may lead to an increase in interest rates. Conversely, weak job growth may lead to a decrease in interest rates.

2. Impact on the stock market

The NFP report can impact the stock market, as it provides information about the health of the U.S. economy. A strong NFP report may lead to a rise in stock prices, while a weak report may cause a decline.

3. Impact on the currency market

The NFP report can also impact the currency market. If the report shows strong job growth, it may cause the U.S. dollar to appreciate against other currencies. Conversely, weak job growth may cause the U.S. dollar to depreciate.

NFP Trading Strategies

Traders use a variety of strategies to trade the NFP report, depending on their trading style and risk tolerance. Here are a few popular NFP trading strategies:

1. Straddle Strategy: The Straddle strategy involves placing buy and sell orders on a currency pair just before the release of the NFP report. The idea is to take advantage of the high volatility that occurs after the release of the report.

Straddle Strategy Trading

2. News Trading Strategy: The News Trading strategy involves placing orders based on the direction of the initial price movement after the release of the NFP report. For example, if the report shows strong job growth and the price of the U.S. dollar rises, traders may place buy orders on the USD/JPY currency pair.

3. Breakout Strategy: The Breakout strategy involves placing orders outside of a currency pair’s current price range just before the release of the NFP report. The idea is to take advantage of the high volatility that occurs after the release of the report.

How to use the NFP Report for Trading

To use the NFP report for trading, traders should follow these steps:

  1. Monitor the release date and time of the NFP report.
  2. Analyze the previous NFP report and other economic indicators to determine the market’s sentiment.
  3. Determine the trading strategy that best fits your trading style and risk tolerance.
  4. Place your orders based on your chosen trading strategy just before the release of the NFP report.
  5. Monitor the market closely after the release of the NFP report and adjust your orders as necessary.

NFP & Which Instruments to Trade

Now that we are aware of how to trade post the NFP Release, lets have a look at some instruments you can trade.

Here are some of the most affected instruments after the NFP Data release.

1. Currencies

Which pair moves most during NFP?

The currency pair that moves the most during the release of the NFP report can vary, depending on market conditions and other factors. However, some of the most popular currency pairs that experience high volatility during NFP include:

  • EUR/USD
  • GBP/USD
  • USD/JPY
  • USD/CHF
  • USD/CAD.

Which pairs are most affected by NFP?

All major currency pairs can be affected by the NFP report to some extent, but some pairs may be more sensitive to NFP data than others. The pairs that are most affected by NFP are usually the U.S. dollar-based currency pairs, such as EUR/USD, GBP/USD, AUD/USD, and NZD/USD, as well as the U.S. dollar-based commodity currencies, such as USD/CAD and USD/NZD.

However, it’s important to remember that market conditions can be highly unpredictable during and after the release of the NFP report, and all currency pairs can experience significant volatility.

2. Commodities

Does NFP affect gold and gold prices?

The NFP report can indirectly affect the price of gold, as it provides information about the strength of the U.S. economy and the potential direction of interest rates.

Generally, when the NFP report is positive and the economy is growing, it can cause the U.S. dollar to strengthen, which can put pressure on gold prices.
Conversely, when the NFP report is weaker than expected and the U.S. dollar weakens, it can support gold prices.Yes, the NFP report can affect gold prices, although the impact may be indirect. As mentioned earlier, when the NFP report is positive and the U.S. dollar strengthens, gold prices may come under pressure, as gold is denominated in U.S. dollars and becomes more expensive for holders of other currencies.
However, when the NFP report is weaker than expected, it can lead to a weaker U.S. dollar and a potential increase in gold prices, as investors may view gold as a safe haven asset during times of economic uncertainty.
The release of the NFP report is often associated with high volatility in the financial markets. The report can have a significant impact on currency pairs, commodities, and other financial instruments, and can cause sharp movements in prices.

3. Cryptocurrencies

NFP report Crypto relation

The impact of NFP data on cryptocurrencies is generally considered to be limited, as the NFP report is specific to the U.S. economy and does not directly affect cryptocurrencies.
However, like any major economic release, the NFP report can create volatility and uncertainty in the financial markets, which can sometimes spill over into the cryptocurrency market.
Additionally, some investors and traders may view cryptocurrencies as an alternative asset class during times of economic uncertainty, and may shift their investments into cryptocurrencies following a weak NFP report or other negative economic news.
However, the impact of the NFP report on cryptocurrencies is generally less direct and less pronounced than its impact on other financial markets such as the foreign exchange or stock markets.

4. Stocks

Yes, the NFP report can affect stock prices, particularly in the United States.

A positive NFP report, indicating strong job creation and low unemployment, can lead to a positive reaction in the stock market, as investors may view this as a sign of economic growth and increased corporate earnings.

Conversely, a weak NFP report, indicating low job creation and high unemployment, can lead to a negative reaction in the stock market, as investors may be concerned about the state of the economy and future corporate earnings.

However, it’s important to note that many other factors also affect stock prices, and the impact of the NFP report on the stock market can be complex and unpredictable.


FAQS

Q. What are the U.S. Non-Farm Payroll and why is it important for the trader?

Answer: Non-farm Payrolls measure the number of workers in the U.S., excluding farm workers and workers in a handful of other job classifications. Non-farm payroll reports are important for the trader because they have a significant impact on financial markets.

Q. How do you trade on NFP day?

There are several trading strategies used on NFP day, including the Straddle strategy, News Trading strategy, and Breakout strategy. Traders typically monitor the release date and time of the NFP report and analyze the market sentiment before placing orders based on their chosen trading strategy.

Q. Who releases non-farm payroll? 

Answer: U.S. Department Of Labor releases Non-farm Payroll.

Q. How does NFP affect forex?

The NFP report can have a significant impact on the forex market, as it provides information about the health of the U.S. economy. A strong NFP report can cause the U.S. dollar to appreciate against other currencies, while a weak report may cause the U.S. dollar to depreciate. The forex market typically experiences high volatility during and after the release of the NFP report, providing opportunities for traders to profit.

Q. Is it safe to trade during NFP?

Trading during the NFP report release can be risky due to the high volatility and unpredictability of the market. Traders should use caution and appropriate risk management strategies when trading during NFP.

Q. What happens when NFP is high?

When NFP is high, it indicates that the U.S. economy is growing and creating jobs, which can lead to an increase in interest rates, a rise in stock prices, and an appreciation of the U.S. dollar against other currencies.

Q. Is a high non-farm payroll good or bad for the market? 

Answer: A higher payroll figure s generally good for the U.S. economy, citing more job additions and robust economic growth.

Q. What time is NFP trading?

The NFP report is released by the U.S. Bureau of Labor Statistics on the first Friday of every month at 8:30 am Eastern Time (ET). Any trading that occurs post this time and in the day of the report’s release can be called NFP Trading Time.


In conclusion, the NFP report is a vital economic indicator that provides valuable insights into the health of the U.S. economy. Traders can use the NFP report to make informed trading decisions and take advantage of the high volatility that occurs after the release of the report. By following the steps outlined in this article, traders can develop an effective NFP trading strategy and use the NFP report for trading with confidence. We hope you found the article useful. Please stay tuned for more articles. 

 

XFlow Markets Team

XFlow Markets is one of the leading brokerage firm in the trading industry with vast number of clientele followers. We are ranked as the top most firm with 9 years of experience along with top-notch trading services. We widely trade in Forex, Indices, and Commodities.

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