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US payrolls send the USD surging! Can it last?

July 09, 2019 11:47

The United States payrolls report for June 2019 surprised the market with 224,000 jobs added to the US economy against an expected 162,000. The US dollar surged higher immediately after the Non-Farm Payroll report. Now the question is, can the move last?

Trading NFP

In this article, we explore why the US Non-Farm Payroll figure is the most important news item on the monthly calendar, what the June jobs report means for the market and why USD/JPY is presenting some very interesting trading opportunities.

What is US Non-Farm Payroll?

The US Non-Farm Payroll report is also known as just NFP and Non-Farms. The figure measures the change in the number of employed people for the previous month, excluding the farming industry. The number is typically released on the first Friday of every month at 2.30pm CET and you can track the release, along with other news items, using the Admiral Markets Forex Calendar, as shown below:

The release of the figures for the Non-Farm Payrolls is a closely guarded secret held by the Bureau of Labor Statistics. That's because there is typically a lot of movement in the markets after the release of the report. However, as economists and analysts suggest a forecast the payroll figure could be, traders typically position themselves accordingly before, during and after the release of the actual figure.

If the payrolls figure is higher than forecast, the US dollar typically rises. If the figure is lower than forecast, the US dollar typically falls. However, the magnitude of the difference between the actual figure and the forecasted figure plays an important role in how the market moves.

Why is US Non-Farm Payroll Important?

Employment figures in any country are considered high impact news items as the strength or weakness of the job market shows how strong or weak the economy is.

For example, when business conditions are good companies will hire more people which in turn means more spending in the economy, more profits for businesses and then even more employment as businesses grow.

Of course, if business conditions are not good, then companies are less likely to hire new people and may even let employees go, which means less spending in the economy and the risk of weak business growth which leads to weak economic growth.

In the global financial markets, money managers and investors tend to move their capital around based on where they think the best growth will take place. This is just one of the reasons why the US Non-Farm Payroll report is the most widely watched economic announcement each month.

How to Trade US Non-Farm Payroll

The June Non-Farm Payroll report was released on Friday 5 July at 2.30 pm CET. Analysts and economists were forecasting 162,000 jobs being added to the economy. However, the figure came in at 224,000, meaning more jobs were added to the economy in the last month than expected.

As the actual figure released di beat the market's expectations, some traders or investors would naturally scramble to readjust their portfolios in line with the stronger number - perhaps expecting a trend to develop in the world's biggest economy.

So how did the market react? Let's look at the 15-minute chart of the USD/JPY:

Source: Admiral Markets MT5 Supreme Edition, USD/JPY, M15 - Data range: from Jul 4, 2019, to Jul 8, 2019, accessed on Jul 8, 2019, at 3:47 pm BST. - Please note: Past performance is not a reliable indicator of future results.

In the screenshot above, the gold box shows the move in USD/JPY immediately after the figure is released and for the next 15 minutes. It's clear to see the surge higher in USD/JPY after the positive release. However, looking at such a small timeframe works well when looking back historically but not so much when trying to forecast what could happen next and what the possible trade is. For this, viewing multiple timeframes is important.

For example, let's zoom out of the USDJPY chart and look at one of the higher timeframes above the 15-minute chart such as the 4-hour chart:

Source: Admiral Markets MT5 Supreme Edition, USD/JPY, H4 - Data range: from Apr 2, 2019, to Jul 8, 2019, accessed on Jul 8, 2019, at 3:52 pm BST. - Please note: Past performance is not a reliable indicator of future results.

In the above 4-hour chart of USD/JPY, it is clear to see the recent downtrend. However, the most recent price action actually shows a break of that downtrend. This is shown by the trend line that was drawn when the market was in a downtrend, breaking to the upside. This means that sellers who were stepping in at the trend line no longer had the appetite to do so, allowing buyers to take control.

Interestingly, this break happened several days before the Non-Farm Payroll news announcement. Perhaps some traders were in the know or perhaps some traders didn't want to risk holding their short positions over the news release. Either way, zooming out and looking the bigger picture or context can sometimes be quite useful.

In fact, we could now go to the timeframe above - the daily chart - to build even more context to the situation:

Source: Admiral Markets MT5 Supreme Edition, USD/JPY, Daily - Data range: from Nov 23, 2017, to Jul 8, 2019, accessed on Jul 8, 2019, at 3:59 pm BST. - Please note: Past performance is not a reliable indicator of future results.

In the above daily chart of USD/JPY, it is clear to see the sideways nature of the market. However, there are often times where the market exhibits trend-like features such as the most recent price action in the downtrend. Perhaps what is most interesting on the most recent price action on this chart has broken above the blue wavy line, known as the 20-day moving average. This also suggests buyers are trying to take control of the market.

Combining technical analysis with economic news releases can be a powerful mix when they line up and produce the same directional analysis.

If you're feeling inspired to start trading, or this article has provided some extra insight to your existing trading knowledge, you may be pleased to know that trader's also have the ability to trade risk-free with a demo trading account. This means that traders can avoid putting their capital at risk, and they can choose when they wish to move to the live markets.

For instance, Admiral Markets' demo trading account enables traders to gain access to the latest real-time market data, the ability to trade with virtual currency, and access to the latest trading insights from expert traders.

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