Good Morning Friends!
We at Platinum Trading Institute (PTI) wish you all a rather belated, though happy Easter. Hope that you had a good Treasure Hunt with your bunnies over the weekend.
Just like ‘Good Friday (Easter),’ the FIRST FRIDAY of EVERY MONTH brings us bunnies, another spectacular opportunity for a successful Treasure Hunt. It is the day when the US Bureau of Labor Statistics publishes the Non-Farm Payroll (NFP) report. The NFP report per Investopedia is:
Nonfarm payroll is a term used in the U.S. to refer to any job with the exception of farm work, unincorporated self-employment and employment by private households, non-profit organizations and the military and intelligence agencies. Proprietors are also excluded. The U.S. Bureau of Labor Statistics releases closely followed monthly data on nonfarm payrolls as part of its Employment Situation Report. The headline figure, the change in the total number of nonfarm payrolls compared to the previous month, is used as a gauge of economic health.
Thus, NFP is one of the twelve critical events that shape, measure and provide guidance on the state of the US economy. For FX markets, it is one of the most significant market movers. As a result, it also provides some outstanding opportunities for FOREX trading. Needless to say that, the most affected currency pairs would be the ones that are USD based, for example, EUR/USD, and USD/JPY.
What Happens on NFP Friday Morning and Why is it Important?
Without exception, the Bureau of Labor Statistics releases primarily two numbers as salient economic indicators, on NFP Friday, at 8:30 AM, EST. The ACTUAL NFP payroll number is the change in the number of people employed during the previous month. As the name, NFP indicates it excludes people employed in the sectors as described above. The other number, EXPECTED NFP payroll number is the forecasted number by various other economic indicators, including the previous month’s ACTUAL NFP payroll number.
These two numbers in isolation do not have a major impact on FX markets. However, a higher actual NFP number than expected NFP number signals bullish US economy. This indicates bullish sentiment for US dollar. On the other hand, a lower actual NFP number is a negative indicator for USD. This impacts currency pairs featuring USD, for example, EUR/USD and USD/JPY immensely. In addition to FX markets, the NFP statistics has far-reaching implications on indicators, such as DJI, VIX, and commodities, such as oil and gold. This interplay among NFP numbers and these various indices can be seen in the following CNBC ‘YouTube clip,’ that narrates events just before and just after the numbers are released.
This video and such other references clearly show the following impacts of NFP announcements on the financial markets.
- The DJI, commodities (e.g. Gold, Oil) and USD based FX pairs exhibit a high degree of volatility,
- There are often incidents when pairs, such as EUR/USD or USD/JPY fluctuate +100/-100 pips in a fraction of a second and
- The trading action begins just before 8:30 AM, though the effects may linger on for a much longer time after the announcement is made.
NFP Outlook for April 6th.
Predicting NFP numbers and its impact on financial markets is evidently a formidable task. However, an informed trader can start a ‘Due diligence,’ process a couple of days in advance and prepare herself for NFP trading. For example.
- According to ADP, the US employment powerhouse, the March total private sector employment increased by about 240,000 compared to expected 200,000,
- This is actually a fifth straight month where the total employment has been on the rise and
- Sectors, such as construction and hospitality have also seen a significant rise in the private employment.
These are some of the salient features that contribute to the integrated report due on Friday.
These numbers indicate a confident populace with more spendable income and willing to spend more on housing and travel. Although, at the same time, the US trade policies are taking its toll on equity investments and DJI has been slipping precipitously over the last few weeks. While, with DJI dropping, investors are chasing ‘Safe Heavens,’ in gold and oil – making them extremely volatile.
Evidently, as a result of events described in the above two paragraphs, predicting FX, DJI, VIX, gold, and oil behaviors on Friday morning would be a formidable task. It is at times, like these, the experts at PTI can help you navigate through turbulent storms attendant to NFP announcements.
PTI Recommendations for April NFP Trading:
As mentioned above, the expected NFP number for April is 200,000 jobs creation for March. The proposed deviation from that number is +50,000 or -50,000. In other words, the actual could be as high as 250,000 or as low as 150,000.
The Bear Trade: Now, if the actual number on Friday morning is greater than 250,000 then it indicates a bullish dollar. In that case, sell EUR/USD with 25 pips stop-loss.
In contrast, if the actual number is less than 150,000 then sell USD/JPY as it is indicative of weaker dollar.
The Bull Trade: An NFP number less than 150,000 indicates weaker US dollar. In that case, buy EUR/USD with 25 pips stop-loss.
In perfect symmetry with the Bear Trade, if the actual number is greater than 250,000 then buy USD/JPY as it is indicative of stronger US dollar.
Precautions for Trading NFP:
NFP trading is like trading through FED policy announcements. Keep Institutional news channels always open for any surprises in National and/or Global news,
Trading through the NFP announcement is also risky. Be careful in trading one hour before or one hour after the announcement. In particular, during announcement minutes the prices expected to fluctuate wildly and
Make sure that your stop-loss limits are well thought out, and correctly placed. A too small a window will stop you prematurely, while a too wide a window might result in significant losses.
The information you’ll find in this article is for educational purpose only. We make no promise or guarantee of income or earnings. You have to do some work, use your best judgment and perform due diligence before using the information in this article. Your success is still up to you. Nothing in this article is intended to be professional, legal, financial and/or accounting advice. Always seek competent advice from professionals in these matters. If you break the city or other local laws, we will not be held liable for any damages you incur.