How to Trade Forex Using the US Non-Farm Payrolls Data

U.S. Non-Farm Payrolls (NFP) refers to the number of new non-agricultural employment in the United States every month, and is released by the U.S. Bureau of Labor Statistics on the first Friday of each month. This data is an important indicator reflecting the economic conditions and job market in the United States, and is also one of the main factors affecting foreign exchange market fluctuations.

The level of NFP data will affect the trend of the US dollar, which will in turn affect the exchange rates of other currency pairs. Generally speaking, the higher the NFP data, the stronger the U.S. job market, the more robust the economy, and the stronger the U.S. dollar; conversely, the lower the NFP data, the weaker the U.S. job market, the weaker the economy, and the weaker the U.S. dollar.

However, NFP data is not absolute, and the impact of other factors must be considered, such as market expectations, previous revisions, unemployment rate, average hourly wage, Federal Reserve policy, etc. Therefore, when using NFP data for foreign exchange trading, you need to pay attention to the following points:

1. Pay Attention to Market Expectations

Before the release of NFP data, the market will have a certain expected value, which will affect the market's psychology and emotions. If the actual data is higher than expected, it will have a positive effect on the US dollar; if the actual data is lower than expected, it will have a negative effect on the US dollar. Of course, this effect also depends on the gap between the expected value and the actual value. The larger the gap, the more obvious the effect.

2. Pay Attention to Early Corrections

When NFP data is released, the revised value for the previous month is usually released at the same time. If the previous month's revision is much higher or lower than the original data, it will have an impact on the current month's data. For example, if the NFP data of the previous month is revised from 200,000 to 300,000, it means that the job market in the previous month was better than originally thought. Then even if the NFP data of the current month is slightly lower than expected, it will not be wrong. The U.S. dollar is causing too much pressure.

3. Pay Attention to the Unemployment Rate and Average Hourly Earnings

In addition to NFP data, the U.S. Bureau of Labor Statistics also releases the unemployment rate and average hourly earnings for the month. These two data are also important indicators reflecting the U.S. job market and economic conditions, and will also affect the trend of the U.S. dollar. Generally speaking, the lower the unemployment rate and the higher the average hourly wage, the tighter the U.S. job market, the stronger the economy, and the stronger the U.S. dollar; conversely, the higher the unemployment rate and the lower the average hourly wage, the looser the U.S. job market. The weaker the economy, the weaker the dollar. 

4. Pay Attention to Fed Policies

NFP data has a great impact on the Federal Reserve's monetary policy, because the Federal Reserve will consider the employment market and inflation when formulating policies. If the NFP data shows that the U.S. job market and economy are overheating, which may trigger inflationary pressure, then the Federal Reserve may speed up interest rate increases or reduce its asset purchase plan, which is positive for the U.S. dollar; if the NFP data shows that the U.S. job market and economy are weak, it may Triggering the risk of recession, the Federal Reserve may delay raising interest rates or increase its asset purchase plan, which is negative for the U.S. dollar.

5. Pay Attention to the Trends of Other Currency Pairs

NFP data not only affects the U.S. dollar itself, but also the exchange rates of other currency pairs. Generally speaking, NFP data has the greatest impact on the euro, Japanese yen, pound, Canadian dollar and other currencies with the highest weight. If the NFP data is positive for the US dollar, then the exchange rates of these currencies against the US dollar will fall; if the NFP data is negative for the US dollar, then the exchange rates of these currencies against the US dollar will rise. Of course, these currencies also have their own fundamental and technical factors, which require comprehensive judgment.