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What are Non-Farm Payrolls, and how to trade the NFP in Forex

Reading time: 15 minutes

The Non-Farm Payroll report, or NFP, is often the most important Forex trading session of the month. Those who trade this day well may finish the whole month in the black, while unlucky traders could lose a fortune.

In this article, we share the ins and outs of the US NFP report, including what the NFP is, NFP dates, how to interpret Non-Farm Payroll data, and how to trade the NFP in Forex.

What is Non-Farm Payroll (NFP meaning)?

NFP stands for Non-Farm Payroll, and it is one of the most anticipated indicators of economic growth in the markets. The NFP report shares the number of jobs created in the United States in the non-agricultural sector during the previous month. This then reflects the level of activity as well as the level of health of the American economy.

As its name suggests, this economic indicator represents changes in American employment outside of the following jobs:

  • Private sector jobs
  • Agricultural jobs
  • Public service jobs
  • Jobs related to volunteering

Why is the NFP so important in Forex?

American employment is strongly correlated with the consumption expenditure of households in the country. Depending on the number of jobs created each month, the level of consumption varies. If jobs are created from one month to the next, the market will anticipate an increase in consumption by American households, which will result in an increase in GDP, giving a better image of the economy.

Given that many economies across the globe do business with the United States, and realise many profits thanks to their American customers, the NFP report also has an influence on many world markets, and generates a lot of speculation among the world's traders.

Do you want to trade the next NFP report? Well the best way to get started is to practice trading - that way you'll be more familiar with how the markets move, along with your trading platform, before the big day arrives.

The good news is that you can now trade the markets risk-free with a free demo account! Just click the banner below to open your account today.

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Non-Farm Payroll dates - When is the NFP report released?

The NFP is published on the first Friday of each month at 1.30 pm GMT. You can keep track of upcoming Non-Farm Payroll releases, along with other important events, using the free Admiral Markets Forex calendar.

non-farm payrolls forex calendar

Source: Admiral Markets Forex calendar

How to interpret the NFP trading report

Before the publication of almost any macroeconomic indicator, forecasts are collected among economists, banks and private investors. To construct the NFP forecast, the median and average of economists' forecasts are drawn.

All data can be easily found on FXStreet, where the website lists:

  • Actual (results from the last release - this is blank ahead of upcoming releases)
  • Consensus (this was the NFP forecast)
  • Previous (results from the previous release)

If the data forecasts were perfect, then market movements would be negligible. However, this is not the case, as forecasts of economists and other institutions often deviate from current values.

Consequently, there are three probable scenarios in the case of an economic publication. When learning about the information provided on the markets, traders will quickly see it meets one of these scenarios:

  • The data in the NFP report are in agreement with NFP forecasts previously published. In this case it is likely that the market does not react particularly to the economic news and simply continues the oscillations in progress.
  • The data in the NFP report is lower than forecast. This is considered to be a negative sign regarding the US economy and will tend to put pressure on the country's currency, since this result reflects a slowdown in the economy and employment.
  • The data in the NFP report is higher than forecast. This is considered to be a favorable sign for the US economy, and therefore for the US dollar.

Note: the difference between the result and the market forecast is often more important than the result itself. The difference between these two figures can help Forex traders anticipate the amplitude of the movement following the NFP publication.

We must also take into account the possibility that the market has already anticipated the result of the publication, which will result in either an absence of reaction to the results at 1:30 pm (this is rare).

One thing is certain: If the results are different from the estimates and expectations of the market, there will be volatility in the markets.

The impact of the NFP report on the Forex market

Non-Farm Payrolls releases can translate into considerable Forex volatility, but it does not have to. As we discussed above, what matters is how surprised the market is by the result. Suppose everyone expects an NFP reading of 100,000. Consider the following scenarios:

  1. Published data are in line with the consensus
  2. Published data show 50,000 new jobs
  3. Published data show 150,000 new jobs

In the first case, the forecast is consistent with the consensus, so everything is already priced into the market. In theory, the Forex market should remain calm in this scenario.

By contrast, the other two scenarios were unexpected.

In the second scenario, everyone expected there to be 100,000 new jobs created, while the NFP report only indicated 50,000. This reading would likely have a negative impact on the US dollar, because a weak labour market means:

  • Poor economic development
  • Lower inflation
  • Less pressure to raise interest rates

All this will translate into the sale of the US dollar.

By contrast, a reading of 150,000 new jobs would have the opposite effect - the US dollar will start strengthening.

We can see this in the 5-minute chart of the EURUSD on January 10, 2019 which was when the first NFP release of 2020 took place. NFP data was below the forecast - the forecast was 164,000, while the release was 145,000 - and we can see that when the NFP data was released (highlighted in the yellow rectangle), the price of the EURUSD spiked, indicating a sell off of the US dollar, and an increase in the value of the Euro in comparison.

NFP report - eurusd chart

Source: Admiral Markets MetaTrader 5, EURUSD, 5-min, Data range: Jan 10, 2020, accessed on Jan 13, 2020 at 10:33am EST. Please note: Past performance is not a reliable indicator of future results.

nfp forex trading eurusd chart

Source: Admiral Markets MetaTrader 5, EURUSD, Daily, Data range: from Apr 4, 2018 to Jan 13, 2020, accessed on Jan 13, 2020 at 10:33am EST. Please note: Past performance is not a reliable indicator of future results.

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How to Trade the NFP - Forex NFP Strategy!

As the NFP Forex publication is often a cause of increased volatility in the currency market, real trading opportunities are present in the markets around this particular event. NFP trading can be extremely lucrative but also extremely dangerous if the trader does not know exactly what to do and does not follow a well-established and tested plan.

With this in mind, there are both short-term and long-term trading strategies.

General NFP trading strategy - Buy or sell EURUSD?

As discussed above, there are several scenarios regarding the NFP release. Consider the following table:

EUR/USD

First reaction

Second reaction

NFP and earnings better than forecast

EUR/USD SELL

EUR/USD SELL

NFP better than forecast, but earnings worse

EUR/USD SELL

EUR/USD BUY

NFP and earnings worse than forecast

EUR/USD BUY

EUR/USD BUY

NFP and earnings consistent with consensus

EUR/USD NEUTRAL

EUR/USD NEUTRAL

In the table above, there are several possible scenarios of market behavior after the publication of NFP and hourly wages. In the next two columns, the reaction was divided into an initial reaction, and a second reaction.

The first reaction results from the NFP report. Most large players in the Forex market have slot machines for macroeconomic data. They work incredibly fast, have the fastest internet connections. At the very beginning, the data is automatically downloaded, after which the machine makes transactions in line with the market surprise. If we want to compete with them, then we must invest a large sum in hardware and good software. In general, the information services we use will be able to download the latest data a few seconds after they are published.

The second reaction shows the movement according to the hourly wage increase reading. If the market is positively surprised, the US dollar should strengthen against the euro. If the reading is negative, the US dollar should lose to the euro. This resulted in the four main scenarios above.

The first reaction in the Forex market usually takes about 10 minutes, while the second one takes up to an hour. According to our observations, playing for the second reaction on the market is much easier than catching the first move. The reason is quite simple - traders don't have to hurry in the second trade. They can easily analyse forecasts and readings, and only then decide to take a position.

Trade the NFP report in the short term

If you're looking to trade the NFP short term, you can either take a position just before the report is published, or just after.

Short-term NFP strategy 1: Trade before the release

When taking a position just before the release, consider trading a breakout strategy. Breakout strategies consists of establishing a range around the price just before the NFP report on an M5 chart in order to be able to capture any movement breaking this range upwards or downwards.

Obviously, here money management and position management are essential, given that this is a strategy requiring rapid execution. This approach is not recommended for beginners.

Here is an example:

non-farm payroll: EURUSD trading chart

Source: Admiral Markets MetaTrader 5, EURUSD, 5-min, Data range: Jan 10, 2020, accessed on Jan 13, 2020 at 10:33am EST. Please note: Past performance is not a reliable indicator of future results.

After identifying the range for the three hours preceding the publication of January 10, 2019. The upper bound here in green represents a pending order to buy and the lower bound in red a pending selling order. The green line outside of range represents an indicative targets (note there would be a short target as well, but this is not displayed at the current zoom).

Short-term NFP strategy 2: Trade after the release

When taking a position just after the release, consider a momentum NFP strategy. The momentum strategy consists of following the momentum of the market at the time of publication and staying in this movement as much as possible, while adding positions as the market continues to move in the direction of your initial position.

This approach can be fruitful, but requires excellent execution and good knowledge as well as strong experience of the markets. Again, professional traders are most likely to take this type of NFP Forex trade.

Here is an example following the January 10 NFP report.

nfp trading: eurusd chart

Following publication, a long position is immediately taken at 1.10921 on the EURUSD and then strengthened when it hits the first green horizontal line at 1.10933, and again when it hits 1.11099, with a 7-pip trailing stop (this is the size of the previously defined 3-hour range.

The pair peaks at 1.11132, meaning the trade is then automatically closed out at 1.11062, meaning the first two positions would have been winners while the last would be a loser. If each trade was opened with one lot with leverage of 1:30, the profit would be:

  • Trade 1: Opened at 1.10921, closed at 1.11062 = EUR126.82
  • Trade 2: Opened at 1.10933, closed at 1.11062 = EUR116.03
  • Trade 3: Opened at 1.11099, Closed at 1.11062 = - EUR33.28

So the end result is a profit of EUR209.57.

Short-term NFP strategy 3: Wait and see

The final short-term NFP Forex strategy is waiting. This strategy consists of entering the market following false signals or a price reversal. This approach is suitable for novice and conservative traders. The goal is to leave the violent movements initiated by the publication and take a position 5 to 15 min later, still on a 5 min chart, once the market has tried to go in one direction but without succeeding to finally decide to turn around and embark on either a new trend or resume the previous underlying trend to the new economic.

In the case of this strategy, traders following the publication of January 10 would have benefited from a decent bullish movement following the false short rebound after the spike that immediately followed the announcement. This rise continued until 19:00 on January 10.

Trade the NFP for the long term

For long-term NFP trading, it's important to analyse the Non-Farm Payrolls report in order to take a position based on a fundamental approach and intended for the medium to long term. This approach is therefore reserved for Forex swing traders and investors.

The economic event here constitutes both a period for taking positions and a meaning for these same positions. Knowledge of economic fundamentals is necessary here in order to analyse the economic context and make the right decision when investing or taking a trade in swing trading.

Top instruments to follow for the NFP

NFP trading is made possible for beginners thanks to CFDs allowing individual traders to take advantage of market movements on a wide variety of products with minimal effort and with disconcerting ease. The best way for a novice forex trader to start NFP trading is to use CFDs to speculate on US indices, gold or even the US dollar through the EUR/USD, USDJPY or USDCHF just after the publication of the NFP report every first Friday of the month. Thus, it will even be possible to train on an Admiral markets demo account in order to improve in this trading activity which requires only a few minutes per month for NFP Forex traders.

Conclusion - Should we trade the NFP in Forex?

As you may have noticed in this article, NFP trading represents time advantages as well as quick or long term potential profits and this on several instruments available to CFD traders.

For the day trader, one hour of work in the month will be enough to trade the Non-Farm Payroll release and potentially realise large gains. For the swing trader, this represents an opportunity to confirm its bullish or bearish bias reflecting the economic situation in the United States for the coming weeks on the instruments of its choice.

Remain aware of the risks present at the time of the publication of economic news of this importance, it is advisable for new traders to take a position only after the publication in order to minimise their risk.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.