Non Farm Payrolls

The US economic calendar is stacked with many events throughout the month but none is more anticipated than the release of Non-Farm Payroll figures. Non-Farm Payrolls, also known as NFP, is reported monthly by the US Bureau of Labour Statistics to give a timely glimpse into employment changes inside of the United States.

Ultimately this report can give traders insight into whether the US economy is expanding or contracting while directly influencing the decisions of policy makers such as the US Federal Reserve. With this in mind let’s take a closer look at this news event, so we can better understand NFP and its potential impact on markets.

First, NFP looks specifically at net changes in employment as jobs are created or subtracted in an economy in any given month. The term Non-Farm is used since farm/agricultural workers are not included in the employment count. The decision to not include agricultural jobs lies in these jobs being largely seasonal that could possibly produce small temporary shifts in labour reporting.

For this reason certain government employees, private household employees and non-profit organization are also not included in the count. NFP figures are known to have significant swings. Traders often speculate on these changes in NFP figures, which often causes market volatility on the day of their release. NFP numbers have been known to produce volatility in the Forex market.

Considering what occurred during a recent NFP release on a USD/JPY 5min chart: NFP was released at 8:30am ET and the numbers came out significantly better than initial expectations. During this time USD/JPY declined sharply in the first minutes of trading, and volatility continued over the next hours. Using fundamental analysis and historical data, short-term high risk positions are often traded as both retail and institutional traders make educated guesses before and during the announcement.

The U.S. NFP is a key fundamental announcement that happens every month. Since a lot of people are trading it, that drives up volume and in turn leads to higher volatility (bigger moves). This is all driven by market sentiment.