One of the most important monthly economic data points in a trader’s diary is the release of U.S. Non-Farm Payroll Report. As the forex market, and most other markets, move based on what the biggest economy in the world is doing (the United States) it is an important economic release for all traders as to profit from the markets you need them to move and they certainly do with NFP. Unemployment figures in the world’s most powerful economy have a particularly profound effect on the forex market and can provide either highly profitable trading opportunities or very large losses.
These jobs figures say a lot about the health of the economy. Particularly if the number is much higher or lower than the expected figure. This scenario can have a big and sudden impact on financial markets and the currency market. These extreme shifts in currency value mean good opportunities to trade, but as we mentioned before, volatility also amplifies risk. You cannot just randomly place trades around when the report comes out and expect to win (in fact, if you do that, you actually are more likely to lose since reports cause whipsaws and other forms of unpredictability).
The non-farm payroll report causes one of the consistently largest rate movements of any news announcement in the forex market. As a result, many analysts, traders, funds, investors, and speculators anticipate the NFP number and the directional movement it will cause. With so many different parties watching this report and interpreting it, even when the number comes in line with estimates, it can cause large rate swings.
Trading news releases can be very profitable, but it is not for the faint of the heart. This is because speculating on the direction of a given currency pair upon the release can be very dangerous. Fortunately, it is possible to wait for the wild rate swings to subside. Then traders can attempt to capitalize on the real market move after the speculators have been wiped out or have taken profits or losses. The purpose of this is to attempt to capture rational movement after the announcement, instead of the irrational volatility pervading the first few minutes after an announcement.
Non-farm payroll data set the tone for the entire day trading but the volatility tends to reduce 15-30 minutes after the initial reaction. Many traders look to wait in the immediate aftermath and look for opportunities, or return to their trading strategies, once the markets begin to consolidate and return to more normalized behavior. For those who specialize in news-related trading, however, the gains made from skillfully playing the release make trading the non-farm payroll data a very central part of their monthly trading strategy.