How Does Non-Farm Payroll Affect the Forex Market?

Non-Farm Payroll or Non-Farm Employment Change is the most important USD-related news that has the highest impact on the Forex market. If you google for Forex-related news or economic indicators, you will be faced with a too long list of the news with different names and descriptions. Novice traders who want to choose news trading as their trading method/style, usually make this mistake and waste their time to follow all of these news because they are told and they think that all of them can give good opportunities to trade Forex and make money, but this is not right.

99.99% of the economic indicators or Forex news have no significant and visible impact on the Forex market, and so they cannot give you any chance to trade. The only one that can be traded is Non-Farm Payroll (NFP) which is also known as Non-Farm Employment Change. In this article, I am going to explain how Non-Farm Payroll affects the Forex market and how you can use this as a chance to trade and make some money. I will also explain why this is not the optimum way of Forex trading and what better options you have.

How Does Non-Farm Payroll Affect the Forex Market?

Non-Farm Payroll has a significant impact on the Forex market. It affects the Forex market and creates strong buy/sell signals, which is good for Forex traders. Forex traders want volatility and signals to trade, and Non-Farm Payroll creates these opportunities for them, almost every month. However, Non-Farm Payroll moves the prices in the Forex market only when it shows a reasonable difference compared to the previous month, otherwise the Forex market won’t react to it. I will give you some examples to understand this better.

A higher Non-Farm Payroll usually equals increasing the USD value. So, currency pairs like USD/CHF, USD/JPY, USD/CAD, etc. will go up, and currencies like EUR/USD, GBP/USD, etc. will go down. A Non-Farm Payroll news release that is significantly and strongly higher than the previous month can create strong long trade setups or buy signals in the Forex market and with currency pairs like USD/CHF that USD is the commodity (the first currency in a currency pair is commodity and the second one is money).

Higher Non-Farm Payroll value means that the economy and industries are doing good, and so they are hiring. This is an important message to entrepreneurs and investors, both in the United States and outside of this country. It gives them more enthusiasm and interest in working and investing in the United States because they see that the conditions are good and are getting better to invest and work and make profit. To do this, they must buy USD against other currencies, especially those who are outside of the United Stated and want to invest and start working in this country. As a result, the USD’s value goes higher against other currencies because there is more demand for it. It is the supply and demand that determines the value in all markets, including the currency market.

Lower Non-Farm Payroll is a bad news for the country and USD’s value, especially when it becomes negative. It means people are losing their jobs and they get laid off because there is no more work to do. Companies don’t start new projects and government doesn’t have the money to pay their employees. This tells the entrepreneurs and investors to stop investing in the country. Those who wanted to invest, they will change their minds and will focus on other countries. As a result, USD’s value will go down and this will create sell signals or short trade setups in the Forex market and with currency pairs like USD/CHF and USD/JPY, and long trade setups with EUR/USD and GBP/USD, etc.

Non-Farm Payroll directly reflects the situation of the United States economy, employment and industries. There is no other economic indicator that can do this in a way that Non-Farm Payroll does because job and employment in a country are directly linked to their economy. Non-Farm Payroll shows the number of the new employments for the month, compared to the previous month, excluding the farming industry. Therefore, Non-Farm Payroll covers the governmental and companies’ employments.

Currency Value Appreciation Is Not Always Good

This article is focused on the impacts of Non-Farm Payroll on Forex market, which is important for Forex traders. Forex traders want volatility and signals. They don’t care about the economy and other things. However, there is something that is good for you to know:

Increasing the value of a currency is not always good for the country because it prevents their suppliers and factories to sell their products to other countries. It also prevents tourists from buying the currency, traveling to the country and spending their money there. It causes companies not to receive enough orders from other countries. Therefore, if the value of the currency, or USD in this case, keeps on going up, it will have a negative impact on the economy. When the economy is good, people get hired and Non-Farm Payroll  goes up. But when Non-Farm Payroll  goes up, USD’s value will go up and it affects the economy and slows it down. That’s why the central bank sometimes tries to balance this by changing the interest rate. When they see that USD’s value is going too high, they may lower the interest rate, which is something that happens very rarely.

This may have no importance for Forex traders. But it is good to know that increasing the value of a currency is not always what the country wants.

Should You Use Non-Farm Payroll to Trade Forex?

You can do it, but you need something more to have a reasonable income through Forex trading. Non-Farm Payroll gets released once every month. Even if it can move the Forex market every month, you will only have one trade setup per month, if you can take the trade setup and make money. However, Non-Farm Payroll doesn’t move the Forex market every month. For example, when the current month’s Non-Farm Payroll is 100K while it was 75K last month, then you won’t see any strong movement and trade setup. You will see a strong movement and trade setup, for example when the current month’s Non-Farm Payroll becomes 375K, while it was -250K last month, or visa versa.

So, although Non-Farm Payroll is the strongest economic indicator or Forex news that can strongly move this market and form strong trade setups on price charts, it is not enough for professional and fulltime Forex traders.

Non-Farm Payroll is more important for entrepreneurs and long-term investors and swing traders who hold their positions sometimes for years. It gives them a long-term perspective about economy and main direction of the Forex and other markets. Following the Non-Farm Payroll trend is a big help for entrepreneurs and swing investors to have a forecast about the future of their investments and economic activities.

If you are interested in Forex news trading, there are a few short articles that you must read before you make any mistakes that cause you to lose money:

If you want to become a professional, consistently profitable and fulltime Forex trader, then you should not care about Non-Farm Payroll. I explained why. Non-Farm Payroll doesn’t give you enough opportunities to make money. You should learn a strong trading system that enables you to have more trading opportunities. You’d better to learn the basics that are for retail Forex trading. Following the news like Non-Farm Payroll won’t help you. Start from here if you are new to Forex: What Is Forex and How Do Forex Traders Make Money?

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By The LuckScout Team

I don't believe in luck. I believe in sweat. The more you sweat, the luckier you get.

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