Fundamental

All About NFP

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NFP alias Non Farm Payroll or Non Farm Employment Change is one of news releases which is center of attention of forex traders. In fact, it can be called that NFP release as the “mother” of all economic and fundamental news releases on forex.

Read Also : GDP, Inflation, Unemployment and Rates

NFP data releases are usually published every first Friday at the beginning of the month, at 08.30 New York time. Besides NFP, other data that usually release are Work Participation Rates, Hourly Wage Figures and details of NFP from the service, manufacturing, government and others sectors. Data from NFP is also important for the Federal Reserve to see the extent of the development of labor in the USA because one of the mandates of the Federal Reserve (The Fed) is to pay attention to labor in the USA.

The Fed’s dual mandate made the market see trends in NFP figures. In addition to managing monetary, The Fed must also be able to create jobs through monetary policy. And the main indicator of fulfilling this mandate is to look at the employment report in the NFP. Why is the non-agricultural sector only summarized? Because the service and manufacturing sectors cover more than 90% of the USA economy, compared to the agriculture sector, which is less than 10%.

NFP is one of the news awaited by the market. In fact, some economic TV stations even provide special slots that discuss this NFP and review it in depth. As traders, of course we wonder how the impact of this NFP on forex trading. Obviously, we must consider the important data in this NFP.

  1. NFP. This data includes the number of workers created, both by the private sectors and the government. The issuing institution is the Bureau of Labor and Statistics. This data release shows how many people are working within one month in all regions of the USA.
  2. Unemployment Rate. The unemployment rate in the USA had touched the level of 10% during the 2008 crisis compared to now at 3%. Regarding unemployment figures, already discussed in this article.
  3. Average Hourly Earning or Average Hourly Wages. The increase in wages is the focus of the Fed to see the possibility of inflationary pressures. Wage increases will encourage consumption and can increase inflation. Conversely, falling wages can slow consumption and can reduce inflation. Rising and falling inflation will affect the Fed in lowering or raising interest rates.
  4. Private Non Farm Payrolls, is the number of workers created by the private sectors in the service sector. Government Payrolls is the number of workers created by government agencies (similar to civil servants) and Manufacturing Payrolls are workers created in the manufacturing sector such as factories.

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All of the data above are released together, so we must carefully read the release. In fact, sometimes news provider sites are down due to the large number of traders who access their sites. Or, late release numbers appear in 1-2 minutes because the site is suddenly crowded with traders who want to see the release results.

The question that often arises is, “Why when NFP was good, but the USD actually went down?” or vice versa. The simple answer, the market has calculated it. Keep in mind that every Wednesday before the NFP was released, there was an ADP data release, which was issued by a private agency to record an increase in the workforce. Investors often make this ADP data as reference for NFP.

Others are the focus of the Fed. During the 2008 crisis, it was true that the focus of the Fed was to create as many jobs as possible because unemployment reached 10%. However, when tapering off began in 2016 and the unemployment rate steadily dropped, the focus of the Fed changed. Instead of just focusing on the quantity of workers, the Fed focuses instead on the quality of the workforce. And the quality is the wages received by workers, whether rising or falling. That is why, the focus of the market since 2016 is no longer paying attention to NFP, but to Average Hourly Earning.

Then, sometimes in addition to labor data, other data can also be released together with NFP. This can be a distortion of NFP data. As an example in the picture before, besides the release of the labor sector, there are also the releases of the trade balance (trade balance) and inventory (wholesale inventory).

Another factor is the nuance of the market. The nuances of a market that is risk off or risk on, sometimes makes the effect of NFP stronger or weaker. Similar to the effects of tides and the moon, when the risk off happens the nuance of the market and NFP are good, the market can react with a very strong USD buy. Or when the market is risk off but NFP is bad, it could be that the impact of the USD will stagnate or strengthen slightly. And so on for a good or bad combination of risk on and NFP.

Detailed NFP data is also sometimes considered by the market, for example the closed unemployment rate above is written U6 Unemployment Rate or which sector absorbs labor. The tourism or retail sector is a sector with low wages, so if there is a lot of employment in this sector, the market may not necessarily respond to NFP even though the results cumulatively produce high numbers. Conversely, if workers are absorbed in manufacturing or service sectors,  market can respond well to NFP figures, although sometimes below analyst predictions as a whole.

The combination of all the factors above must be taken into account. It sounds difficult to understand all of it, but over time, if a trader really wants to learn and be curious about NFP, it usually becomes something interesting. In fact, for some people it’s easy to predict. Because generally, the market response to NFP is the accumulation of trends. A good NFP data followed by NFP sub data which also moves in the same direction will give an illustration that the USA economy is moving in a good direction and this is good for the USD. Conversely, if labor absorption is lacking and the NFP sub data also deteriorates, then this could make the USD corrected.

For beginners, it is better not to participate in trading before, during and some time after NFP release. Price movements sometimes move very wildly, because the market is still digesting NFP data releases, detailed NFP data and seeing nuances in the market. In addition, some brokers usually provide additional rules when there is high impact news like this, or even spread from the broker widens to many times.

As a beginners, the first thing to learn is how the market responds to NFP and observe its movements. If there is already clarity the price will go up or down, then you can do entry . Even then, still have to pay attention to the lot and make sure the stop loss and profit targets are set. Don’t get caught up with the words “dare to die” when there is a release like this, because the bet can make the account affected by Margin Calls. Of course, we all want to keep our capital as long as possible.

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