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US Payrolls Shock The Market. What’s Next For the USD/JPY?

April 10, 2019 14:00

After a shocking US employment data report in March - showing only 20,000 jobs were added to the US economy - the release of the April's payrolls number was always going to be hugely important.

USD Payroll data shocks the market

In today's article, we explore why the US Non-Farm Payroll figure is the hottest news item on the monthly calendar, what the April jobs report means for the market and why the USD/JPY is presenting some interesting trading opportunities.


What is US Non-Farm Payroll?

The US Non-Farm payroll figure, or NFP for short, measures the change in the number of employed people, excluding the farming industry, for the previous month. 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 a Forex Calendar.

The Bureau of Labor Statistics keeps the figure a closely guarded secret until its release. However, 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 payrolls are higher than forecast, the US dollar typically rises. If payrolls are lower than forecast, the US dollar typically falls. However, the magnitude of the difference between the actual figure and the forecast figure plays an important role, as well as how much 'expectancy' is already priced in from traders who position themselves before the release.


Why is US Non-Farm Payroll Important?

Payroll figures and employment numbers in any country are considered high impact news items. One of the reasons is simple - job creation shows the strength or weakness of an economy.

If business conditions are good, companies will hire more people. If more people are employed, more spending takes place in the economy. The more spending that takes place, the better it is for business and the cycle keeps on going. Of course, if business conditions are not good, then companies are less likely to hire more people which means less spending in the economy and the start of weak economic growth.

Investors move money around based on where they think the best growth will take place - which is why the employment number is the hottest item on the economic calendar at the beginning of each month.


How to Trade US Non-Farm Payroll

In the first week of April, the US Non-Farm Payroll figure beat market expectations posting a gain of 196,000 jobs against an expected 172,000. However, at the same time, another important figure related to employment numbers is also released. It is related to the growth in wages and is called Average Hourly Earnings.

While the NFP figure showed a rise in the number of jobs added to the economy, the Average Hourly Earnings data showed a drop in the price businesses pays for those jobs. In fact, the market was expecting a slight drop from the month before of 0.3% but the actual figure came in at just 0.1%.

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

Source: Admiral Markets MT5 Supreme Edition, USD/JPY, M30 - Data range: from April 4, 2019, to April 8, 2019, accessed on April 8, 2019, at 11:08 pm BST. - Please note: Past performance is not a reliable indicator of future results.


In the screenshot above, the blue arrow shows the thirty-minute candle after the release of the US Non-Farm Payroll. The candle is relatively large and ended as a doji candle, which represents indecision because the open and close of the candle are very close together and towards the middle of the entire candle's length. Traders could have expected this after a mixed report which showed a positive number in payrolls but a negative number in wages.

However, was the high of the thirty-minute candle random? Let's zoom out of the USDJPY chart and look at the bigger picture.

Source: Admiral Markets MT5 Supreme Edition, USD/JPY, Daily - Data range: from March 7, 2018, to April 8, 2019, accessed on April 8, 2019, at 11:16 pm BST. - Please note: Past performance is not a reliable indicator of future results.


In the daily chart of the USD/JPY above, there are two resistance lines that intersect at one price level. Traders often use horizontal resistance lines and trend resistance lines as areas to sell, or short, from. In this instance, the high of the thirty-minute candle after the release of NFP, moved into the resistance lines as shown from the two blue lines on the chart above.

Combining higher timeframe with lower timeframes can be very useful in finding clarity during high impact news events. Many traders will use the lower timeframes to enter positions based on the direction of the higher timeframe, to try and achieve high reward setups relative to their risk.

So what's next for the USD/JPY?

Source: Admiral Markets MT5 Supreme Edition, USD/JPY, Weekly - Data range: from December 18, 2011, to April 10, 2019, accessed on April 10, 2019, at 10:10 pm BST. - Please note: Past performance is not a reliable indicator of future results.


In the above long-term chart of USDJPY it is clear to see the overall market is trading within the upper resistance and lower support lines, highlighted in blue. Longer-term traders may use these levels to help in their trading decisions, whereas shorter-term traders will look at more recent price data, as the chart below shows.

Source: Admiral Markets MT5 Supreme Edition, USD/JPY, Daily - Data range: from July 20, 2018, to April 8, 2019, accessed on April 8, 2019, at 11:28 pm BST. - Please note: Past performance is not a reliable indicator of future results.


With mixed employment results, it is clear to see the momentum higher in the USD/JPY has waned. As this slowdown in momentum has occurred at major resistance lines, sellers could stay in control of the market - possibly back down to the next level of support denoted by the ascending blue line on the chart above.

However, if buyers can break through its current resistance lines, then more will likely join in - fuelling a bigger push to the upside. Either way, there seem to be some very interesting trading opportunities to test out. Sign up for a free demo account to trade in a risk-free environment.

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