How the NFP Affects Forex

Conventionally, there are several ways of trading the news[MI1] , in a volatile market like that of Forex. These ways include breakouts, news fades and market dips. Regardless of your trading strategy, it is always important to keep an eye on profit and loss fluctuations in order to minimize the risk.

A very exciting and often profitable experience for traders willing to enter an unpredictable market is trading via NFP.

The term NFP standing for, non-farm payroll (NFP) is a report, that acts as a key economic indicator for the United States market.

It represents the total number of paid workers in the U.S., minus the government employees, private household employees, farm employees and employees of nonprofit organizations.

It is one of the most important labor news that is able to influence the forex market strongly because of its strongly moving impact on the USD currency pairs.

No other news is strong enough to make the markets move like NFP does which justifies its string influence on Forex.

The NFP report is usually released on the first Friday of every month at 8:30 a.m. EST. , allowing the active traders the privilege of a favorable environment, as it provides a near guarantee of a tradable move following the announcement, but like all other trades it is not a surety if one will make money or not.

It allows a person to approach the trade from a logical point of view, based on the direction of the market.

NFP influences the market in a lot of ways, some of which drastically change the course of the trade and may also change the sentiment and how investors view the economic growth.

Job gains also push the wages higher which is very crucial to the Federal Reserve in order to determine increase or decrease in interest rates. The Fed uses a combination of growth and inflation to determine the need for any change.

When employment increases economy goes up indicating that the country will have a good future. Therefore, people from within the country, as well as well as from abroad will invest in the country, because they believe their investments will be end up in profit.

To invest, they will buy the country's currency against other currencies and this will result in an increase in the value of the currency. This increase will like all other markets drastically impact the trades in the Forex.

And in the case of an opposite scenario the severity will remain the same only the impact will be negative.

The NFP is quite influential amongst the forex market traders, as it is a good summary of labor market conditions and provides sufficient data on the hiring policies of different sectors across the country.

The data in this report has dire implications on overall economic dynamics. It also influences the interest rates of the Federal Reserve, and the inflation rates. It is clear that this release is of utmost importance to the traders, trade analysts and to the market as a whole. So, this much impact of NFP on the economy directly and on the market indirectly, shows the amount of influence it holds in the forex market and undoubtedly the reasons, why it affects it so much.

Articles based on: 
Forex