The monthly US jobs reports, which is a major market moving event, is made up of two major reports: the monthly unemployment report and the monthly NFP change. These reports often produce fantastic short-term trends for FX traders, especially in the main USD and associated currency pairs.
Usually, high beta currency pairings like the AUD/USD, GPB/USD, and the EUR/USD react more to how the report influence overall risk appetite rather than concerns specific to the US dollar, with the USD/JPY showing the biggest reaction to the NFP’s report on the USD.
In forex, how to trade the NFP is a crucial factor in evaluating and profitably reacting to changes in the market that are incurred due to the release of the NFP. When there is a rise in the Non-Farm Payroll Report, it is typically the outcome of a rise in jobs in the United States. This will usually drive up the price of the US dollar against its main trading partners.
Trade The (Over) Reaction
When trading the euro against the US dollar, you would want to purchase US dollars and sell euros before any movement in the market due to the release of the report. The price of the euro will fall against the US dollar when the entire market reacts the Non-Farm Payroll Report. Traders will at that time exchange US dollars for euros and close their position with realized gains.
By learning how to trade the Non-Farm Payroll Report you are learning to utilize its data to set up and carry out gainful trading positions before everyone else. It is most profitable to trade the response to the NFP. Normally, the FX market will consolidate ahead of the NFP, with a subsequent price jump. Your success in this strategy will depend on the quality of your prediction.
From the time the report is released and the market corrects itself, you could profit or lose money based on whether you have predicted the outcome correctly. This means that in the FX market, how to trade the Non-Farm Payroll Report is to trade on the response to the report (or, more likely, the over-response).
No matter the market, over-reacting to news and reports is common practice. An investor in the foreign exchange market can utilize technical analysis instruments to try and anticipate the market’s reaction to the Non-Farm Payroll Report and determine opportunities to sell or buy US dollars against other currencies.
Trade When The Report Is Released
Trading the NFP report requires you to be at your trading post, and logged into your brokerage account when the Non-Farm Payroll Report is being released. When you are trading an NFP report, you will be provided with a number of chances to realize gains as the FX market corrects.
Ultimately, the forex market will achieve a new balance, and the Non-Farm Payroll Report trading possibilities will have to be put on hold until the next NFP report is released. It is advised to be at your trading station and have a clear FX system in place when the Non-Farm Payroll Report is released. Remember to trade appropriately, and realize profits according to your strategy.