Sunday, February 25, 2018

Forex: Non-farm Payroll and Other News Events

October 31, 2010 by  
Filed under General Forex Information

Economists and Financial experts will gather and announce their estimates on what economic indicators figure should be to the newspapers and the internet. If their predication are accurate with the non-farm payroll numbers, the market is said to have “priced in” the numbers, and the market will barely react when the news is made.

However, usually the ‘guesswork’ and the actual figures hardly match. I mean, not everyone knows when will he or she will get fired or not. And when there numbers doesn’t match, an extreme movement in the market happens. After which the market will attempt to go back to the price which is fundamental correct. This result in two extreme movement after the news was announce.

Ok, first thing first, What is US Nonfarm Payroll?

It is a monthly survey data released by the U.S Department of Labor Statistics on the first Friday every month. This report estimates the total number of workers in America, not including those who are working in these places:

  • The Government
  • Private Household employees
  • Non-profit Organizations like Charity
  • Farm Workers

These workers produce about 80% of U.S Gross Domestic Product.

U.S Department of Labour Bureau of Labor Statistics get these information by conducting surveys with 160 thousands businesses and government agencies. These 160 thousands businesses and government agencies has about 400 thousands individual working for them. Thanks to these surveys, U.S Department of Labour Bureau of Labor Statistics are able to get detailed data on employment, working hours and workers’ salary.

US economic health was indicated by whether does Nonfarm Payroll data increases or not. Since the report shows whether US businesses are hiring or firing anyone from the US total workforce.

Nonfarm Payroll is one of the most important fundamental and economic indicators we should take note. As a report of an increase or decrease of new jobs created outside of the farming industry monthly, traders will act very fast to trade. Usually should the figures is better than expected, market will often become very bullish.

However, should the Nonfarm Payroll is worse than expected, traders will also look at another indicator, the Unemployment Rate.

Unemployment Rate tell us the amount of people that are jobless but looking for one actively. If the number is smaller, than it means the people got hired, businesses are doing better, required more manpower and the US economy is expanding.

When Nonfarm Payroll was worse than expected, traders will look at the Unemployment Rate to check whether or not the change is positive, negative or no change. So if Unemployment Rate increases, the dollar will become bearish. If it decreases, meaning more people got jobs, dollar will became bullish. Should there isn’t any change in the Unemployment Rate, then mild dollar bearishness could be started by adamant dollar bears.

However, it is important to know that it is extremely hard to trade Nonfarm Payroll and Unemployment Rate only because most traders will not take note those important components but rather seek what strengthen their prejudice. This usually cause the forex market to be extreme volatility.

As anyone can guess, trading with these news is extremely challenging. Some experience traders looking forward for the first Friday of every month. Others traders, like me, will shut down my computer, and go for a nice game of Magic the Gathering. (yes… I am a geek… ) As the volatility is extreme, that it can go bull and bear within for 10 minutes after the announcement for 200pips. That can hit many stop losses.

In summary, Nonfarm Payroll is an important economic indicator. It has the most potential to move the forex market than other economic news. Nonfarm Payroll’s importance can be break down into two section:

  1. Employment Rate, as it represent the economic growth and the potential of U.S future growth.
  2. Traders’ Reaction, they will only enter the trade after the announcement as to prevent any surprises for their position.


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