Non-Farm Payrolls (NFP): creation of non-farming jobs in the United States

Definition of the Non-Farm Payroll indicator

The Non-Farm Payroll figure reports on the number of jobs created in the United States during the previous month in the non-agricultural sector, and, consequently, it measures the level of activity and health of the U.S. economy. The NFP figure is one of the market's most watched indicators of economic growth. It is a "market mover" that significantly influences the prices of the forex and financial markets.

 

Interpreting the NFP

The NFP figure (for the previous month) is released on the first Friday of each month at 13:30 PM (GMT).

In order to be meaningful, this indicator needs to be very high, or extremely negative, but in practice, traders' reactions to it are often exaggerated.

An NFP figure that is significantly higher or lower than expectations often has a strong impact on the psychology of the financial markets, especially on the value of the U.S. dollar.

If the indicator is trending upward, this has a positive effect on the dollar, but it can cause fears of inflation if the country's economy is in an expansion phase.

Note:

99% of the time, the figure that is released confirms the expected trend. The greater the difference between the expected figure and the actual figure, the more the market movement will be volatile.

Professionals (market makers) are the counterpart to their clients' trades. In addition, they have the advantage of knowing their clients' stops. Following an economic announcement such as the NFP, forex prices frequently head in the wrong direction, as professionals are hunting down their clients' stops! Shortly afterwards, the price of the currency heads in the direction dictated by the economic announcement. It is therefore less risky to position yourself just after the announcement and to fade the market in the other direction once the professionals have hunted down the stops. For example if the NFP is higher, the EUR/USD is expected to fall (because the number is good for the dollar), but, in general the EUR/USD price starts to increase within the 5 minutes that follow the announcement. This is when you want to fade (trade in the opposite direction) the market.

 

Strategies for trading the news

When employment figures are released, volatility can be very high. The EUR/USD price can sometimes vary by one hundred pips in just a few minutes. The likelihood that your positions trigger a stop loss or face a margin call is high. It is therefore advised that you enter the market after the economic announcement for a short-term strategy.

-> Beginners are advised to not enter the market before the release of important news such as the NFP report.

-> The indicator can eventually be used to influence the month's dominating strategy. In this case, we wait for negative news in an upward trend to place an order in a trough and vice versa in a downtrend.

-> It can also be used to influence the leading strategy of the day. In this case, you would go long on the EUR/USD if the expected NFP figure is bad and vice versa if the expected NFP figure is positive.

NFP strategy

Breakout or breakdown strategy

This technique consists in placing an order right after the news is released, while using a 5-minute candlestick chart.

On the candlestick that follows the news:

Upward breakout = buy with a stop loss on the candlestick's low.

Downward breakout = sell with a stop loss on the candlestick's high.

The trade exit can be made with two objectives during the day and the stop loss can be increased up to breakeven (entry point) once the TP1 (take profit 1) is reached.

This strategy can be used in a less aggressive and safer manner by only going long on the EUR/USD if the NFP number is negative and vice versa if it is positive.

If your trading capital allows it, you can trade the announcement more aggressively with the same entry strategy but by placing stop loss orders on the high or low of the economic announcement's first candle.

Note: When using this strategy, it is important to keep in mind that some brokers' spreads widen significantly during these major economic announcements.

Always test your strategies on a demo account! Then, when you use this strategy on a real account, use a low level of leverage, as leverage should primarily be used to diversify your positions and not to increase your exposure to risk on a financial instrument.

 

Historical employment data - United States

Non-agricultural job employment rate: Determines the variation in the number of people employed during the past month, excluding the farming industry. A rising trend has a positive effect on the dollar.

The unemployment rate determines the percentage of the total labor force that is unemployed and that was looking for a job during the last quarter. A downward trend has a positive effect on the nation's currency.

The charts are at GMT +2, the NFP is therefore announced at 15:30 PM on these charts.

To stay informed of economic statistics in real time, consult our calendars.

  Number of jobs created   US unemployment rate
Date released Actual Expected Previous Chart Actual Expected Previous
02 Apr 2010 162K 190K -14K 5 Min 9.70% 9.70% 9.70%
05 Mar 2010 -36K -55K  -26K  5 Min 9.70% 9.80%  9.70% 
05 Feb 2010 -20K 15K  -150K  5 Min 9.70% 10.00%  10.00% 
08 Jan 2010 -85K 0K  4K  5 Min 10.00% 10.10%  10.00% 
04 Dec 2009 -11K -114K  -111K  5 Min 10.00% 10.20%  10.20% 
06 Nov 2009 -190K -166K  -219K  5 Min 10.20% 9.90%  9.80% 
02 Oct 2009 -263K -190K  -201K  5 Min 9.80% 9.80%  9.70% 
04 Sep 2009 -216K -220K  -276K  5 Min 9.70% 9.50%  9.40% 
07 Aug 2009 -247K -330K  -443K  5 Min 9.40% 9.60%  9.50% 
02 Jul 2009 -467K -375K  -322K  5 Min 9.50% 9.60%  9.40% 
05 Jun 2009 -345K -521K  -504K  5 Min 9.40% 9.20%  8.90% 
08 May 2009 -539K -580K  -699K  15 Min 8.90% 8.90%  8.50% 
03 Apr 2009 -663K -662K  -651K  15 Min 8.50% 8.50%  8.10% 
06 Mar 2009 -651K -636K  -598K  15 Min 8.10% 7.90%  7.60% 
06 Feb 2009 -598K -530K  -524K  15 Min 7.60% 7.50%  7.20% 
09 Jan 2009 -524K -475K  -533K  15 Min 7.20% 7.00%  6.70% 
05 Dec 2008 -533K -320K  -240K  15 Min 6.70% 6.80%  6.50% 
07 Nov 2008 -240K -200K  -159K  15 Min 6.50% 6.30%  6.10% 
03 Oct 2008 -159K -100K  -84K  15 Min 6.10% 6.10%  6.10% 
05 Sep 2008 -84K -73K  -51K  15 Min 6.10% 5.70%  5.70% 
01 Aug 2008 -51K -75K  -62K  15 Min 5.70% 5.60%  5.50% 
03 Jul 2008 -62K -60K  -49K  15 Min 5.50% 5.40%  5.50% 
06 Jun 2008 -49K -57K  -20K  15 Min 5.50% 5.10%  5.00% 
02 May 2008 -20K -80K  -80K  15 Min 5.00% 5.20%  5.10% 
04 Apr 2008 -80K -50K  -63K  15 Min 5.10% 5.00%  4.80% 
07 Mar 2008 -63K 25K  -17K  15 Min 4.80% 5.00%  4.90% 

 

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