One of the most anticipated economic news reports in the Forex market, the nonfarm payroll report is published the first Friday of the month by the U.S. Bureau of Labor Statistics. The release also includes numerous other statistics, such as the unemployment rate. Currency pairs — especially those involving the U.S. dollar — often see large price movements after the data is released. It’s a great opportunity for day traders to take advantage of upcoming market vulnerability.
What do traders look for?
Forex traders tend to keep their attention on what is happening in the financial markets. What happens within an economy is equally important. This is why traders will also look at economic indicators such as gross domestic product, housing stats and employment reports. One source of economic information is the nonfarm payroll report, or jobs report, from the Bureau of Labor Statistics on the first Friday at 8:30 am ET. Within this report is information on job growth, unemployment numbers and comparisons of growth within different economic sectors of the economy.
Know what to analyze in the report so you can make the most out of trading opportunities as they appear. For example, if the nonfarm payroll appears to be expanding, it’s an excellent sign the economy is growing. For Forex traders, this means the overall value of the U.S. dollar will increase as well. This pace of growth is worth noting; growth that occurs too fast could indicate that inflation is on the rise. If that occurs, traders must be careful — don’t jump into anything. Wait and see what’s happening in the market before you make a decision.
Also note how the level of the actual nonfarm payroll compares to estimates given on that same payroll. When the nonfarm payroll falls below that estimate, Forex traders will assume the currency will weaken — leading more traders to sell.
Current market trends
There has been a downward trend over the past few months when it comes to job growth, which is different than analysts predicted. Furthermore, created jobs were primarily in professions that earn lower wages. Optimal economic growth cannot be achieved if this trend continues. In the long run this causes less confidence in the value of the U.S. dollar.
However, some growth in the EUR/USD pairs is expected. So, what opportunities should a Forex trader look to when trading the nonfarm payroll? A trader should set reasonable limits on their traders, and look to trade at a 1:1 risk to reward ratio. Any Forex trader should be prepared to face a scenario when unemployment rates decline and weaken the U.S. dollar. This possibility could increase demand for the dollar in foreign markets.