Last updated on August 6, 2021 by Alphaex Capital
This monthly economic indicator has all beginners with their eyes open.
And not without good reason either.
In this article, we will show you the real non-agricultural payroll and explain what NFP in foreign currency is.
Please read, because at the end of this article we will explain why you should avoid this data when operating.
Check it out:
What is NFP for Forex?
Non-farm payrolls, or NFPs in short, are a monthly number published by the Bureau of Labor Statistics that measures the percentage of changes in employment that have occurred since last month.
The publication of the data occurs every first Friday of each month at 8:30 a.m. Eastern Time, and influences markets because it is seen as an indicator of the health of the U.S. economy.
It also gives investors an idea of what the Fed will do with interest rates.
How are non-farm payroll data interpreted?
Data on non-agricultural payroll are those used by traders to determine the strength of a country’s employment situation.
They can be used in two ways:
- To help assess and predict the performance of savings (for example, if you want to know what percentage of changes have taken place in jobs since last month).
- And as a predictor of what future interest rates will be.
What does it mean if the payroll data that does not belong to the farm is higher than expected?
If the payroll report that does not belong to the farm exceeds what economists were predicting, there will be more jobs available and therefore more demand for goods and services, as people have more money at their disposal. the pocket to spend on these things.
It means the economy is strong and will continue to grow.
What if the payroll data that does not belong to the farm is lower than expected?
If a country’s non-farm payroll report falls below what economists were predicting, there will be fewer jobs available and therefore less demand for goods and services, as people have less money in the market. pocket to spend on these things.
It means the economy is not doing well and will probably continue to shrink.
This can lead investors to sell what they own for fear of what might happen next, which in turn causes a fall in stock prices or what we call a falling bear market.
To sum up:
Higher than expected = better for the US economy = Strengthen in dollars
Less than expected = worse for the US economy = USD weakness
How to accurately guess the NFP before publishing it.
This is the trick any worthwhile trader uses.
It is also very easy.
All you have to do is:
Keep track of weekly unemployment claims data.
If it has an upward trend, expect a weaker NFP
If it has a downward trend, expect a stronger NFP
You can also compare this to the consensus for the NFP (if there is an acceleration in weekly unemployment claims), this may produce a higher-than-expected result.
The opposite is true if weekly unemployment claims fall rapidly.
If the trend of weekly jobs is slightly incremental, but can be predicted almost (for example, in some thousands of years of claims), you can expect the NFP consensus to be accurate.
These figures are accessible to everyone, that’s how you interpret them.
This does not mean that you can accurately predict the outcome of the NFP.
But you will be able to guess exactly which side of the consensus would await you.
What really causes the NFP movement.
One of the reasons the NFP data is causing such a huge change in the foreign exchange markets is because it is what drives rates.
Traders observe what will happen to interest rates after the launch and do so by observing what happens to short-term Treasury securities or T-bonds.
When interest rates are low, what this means is that people will be more likely to apply for bank loans or take out a mortgage.
T bonds go up in price with lower interest rates and there is less demand, so they are not worth it.
And what does it mean when an asset is useless?
Well, it also lowers traders ’perception of what the economy looks like and what they think will happen to interest rates.
But when payroll data that doesn’t belong on the farm doesn’t live up to expectations, it can lead to a rate hike, which no one wants.
Remember when we talked about weekly unemployment claims data?
Remember when we said that any stock trader worth its weight also followed these figures?
Well, that would be if the institutions and hedge funds were also using exactly the same technique mentioned earlier.
What you really see when data is released to the markets is this:
Institutions that liquidate their large positions in which they have expanded based on their own systematic framework and analysis.
These liquidation events produce a large amount of stop loss and at the same time receive profit orders.
This creates a large rise in prices throughout the stock market.
Why are beginners attracted to the PNF?
Like a moth in the light, beginners are attracted to this data point more than anything.
In the same analogy, these same beginners also fry with light.
“I want to make quick and huge profits”
Quick, strong, and risky profits lead to quick, strong, and easy losses.
But it’s not your fault.
Brokers are confident in sending you this message, emphasizing the importance of NFP and how to change it.
So why do runners do it?
Simple, if you change it (due to the big moves), the spreads widen during this time and therefore you will make more money.
To be clear, the most reputable brokers will not benefit from your losses, but the difference the market offers can easily eliminate your stop loss.
Therefore, even if you hit the call, up or down, you may not even be able to exit the trade.
You should avoid this time of negotiation, it is not worth it.
Why you should avoid NFP at all costs
Three key reasons:
- Trade is expensive: they extend the stalls to charge for volatility.
- You can enter a trade and your stop loss is not filled due to market volatility, so open an account to be destroyed.
- It becomes a liquidity provider so that institutions can get out of their business.
- It’s a gamble, even if you do an investigation into unemployment claims.
Best resources for NFP data publications
Here are some of the best resources for capturing real-time non-farm payroll data:
Now you know what nfp is for forex trading.
Look, it’s not as terrifying (or lucrative) as it was advertised, right …
Hopefully, you will pay attention to our warnings and advances as a forex trader.
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