The USD currency is one of the most traded currencies in the forex market. This is primarily due to the attribute that the US hosts the biggest economy in the world. In forex trading, when it comes to the basics, you actually buy one currency for another and vice versa. In this scenario, any economic news that affects either of the currency pairs can infact play a big role when it comes to trading those respectice currencies. Forex trading is nothing but the economics of supply and demand. A country that posts high economic growth will inadvertently see an increase in the demand for its currency.
The US Non Farm payroll is an economic indicator that publishes the monthly employment numbers. The NFP data is basically an indicator where in an increase in jobs represents a growing economy and thus an increase in the demand for the US dollar. However make note that that forex trading is not that simply as it seems. So while the NFP may post great numbers, it doesn’t mean that the value of the USD will increase in the same proportion. In most cases, the value of the currency tends to fall when in fact it should have moved in direct proportion to the news.
The impact of Non Farm Payrolls data on the USD
The NFP data is closely watched so closely that it is influenced disproportionately. Unlike other economic indicators where minor changes in the expected numbers doesn’t affect the currency much, when it comes to non farm payrolls, it is a different story altogether. Therefore, when trading non farm payrolls, in the event that the NFP data comes higher or lower than the expected numbers that are posted, it can influence in either a rise in the USD price or a fall.
To illustrate this with an example, if the NFP data was expected to be at 200k and in the days leading up to the NFP release the currency markets price is positioned to anticipate the expected numbers. However if the actual NFP numbers posted is say 250k, then at this point, the traders who had previously bought the USD would make a lot of money because as rest of the traders catch up to the trend, this increases the demand for the USD this pushing the price.
The NFP data impacts the following currency pairs: EUR/USD, USD/GBP, USD/CHF, USD/JPY. The NFP Data is released by the Bureu of Labor Statistics
It is the importance brought forth by the US economy and its influence on the global economic health. Major changes to the NFP is often viewed as an indicator for the rest of the world’s economy. If the NFP data is bad for instance, then investors tend to retreat to gold or other commodities which are considered a safe haven in times of uncertainty.
NFP data release is a much sought after economic indicator. This is an ideal events based trading that forex scalpers look forward to. Not many forex brokers offer forex scalping, except for ECN forex brokers.