KENNY FISHER
PROFILE:
- Current Job: Analyst at Forex Crunch
- Career: Graduated from law school in Toronto. Former account manager at Bendix. Senior writer at Forex Crunch.
Introduction
This article discusses trading FX based on the Non-Farm Payrolls. It is a given that there is an element of risk in trading FX. However, an understanding of some basic concepts about major economic indicators, such as the Non-Farm Payrolls report, can minimize some of that risk.
Background
Financial markets in the US, Europe and around the world react, often sharply, to global economic events. These events can also have a significant impact on the currency markets, so it is important for currency traders to monitor the release of major economic indicators, such as US Non-Farm Payrolls (NFP). This indicator is also referred to as US Non-Farm Employment Change.
NonFarm Payroll
Definition: measures the number of jobs added or lost in the US economy over the last month.
Publication: released usually on the first Friday of each month, at 8:30 EST. It is published by the US Department of Labor.
Significance: considered the most important employment indicator. It provides a look at the health of the US economy in general, and the labor market in particular.
How NFP affects the US Dollar
As one of the most important economic indicators, the NFP release can have a major impact on the forex markets and can affect the direction of the US dollar. This means that traders should always treat the NFP report as market-moving data.
A NFP which is stronger than the estimate (also known as the forecast) indicates that the labor market is stronger than what the markets expected, and the dollar often rises as a result. Why? Let's use a stock market analogy to answer this question. Just like a company's stock often rises after the company releases a strong financial report, so to the US dollar can be thought of as the "stock of the US economy". Thus, when the US releases a strong economic report, the "stock" (US dollar) often rises against other currencies (such as the euro, pound or yen) as a result.
Conversely, a weak NFP report indicates that the labor market is weaker than what the markets anticipated, and a weak reading can push the dollar lower against other currencies.
TIP: Mark your economic calendar so that you can monitor the release time of NFP.
The chart above, taken from the FXStreet Economic Calendar, provides the estimates and actual readings for the June 2015 and May 2015 NFP reports.
Each report covers the employment change measured in the previous month. The June report, released on June 5, covers the employment change measured in May. Similarly, the May report, released on May 8, covers the employment change measured in April.
The chart shows the following:
June reading: actual release: 280 thousand
estimate: 222 thousand
May reading: actual release: 223 thousand
estimate: 224 thousand
D. Effect of NFP release on the markets
When trading based on economic events, it's always a good idea to be well-versed with that particular sector of the economy. So, for trading based on the NFP, a trader should have a solid understanding of employment conditions in the US. The more knowledge you have, the more confident you will feel trading the NFP. Don't accept the market estimates as written in stone; they are often well off the mark. Ask yourself if you think the NFP will improve or lose ground in the next release. If, for example, you feel that the NFP may move higher, then there's a strong chance that the US dollar will move higher following the release (we'll explain why shortly).
TIP: Keep current on financial news, especially on the US labor market and employment conditions. This will help you trade the NFP.
Trading before release of NFP
The period immediately before the NFP release is when market uncertainty is at its highest “ will the reading move higher or lower compared to last month? This uncertainty can lead to volatility in the forex markets, as traders and investors anxiously await the release. Trading during this time carries additional risk, as the markets do not have any solid data to work with prior to the release. Nonetheless, the volatility often seen prior to a major event does present trading opportunities.
Trading after release of NFP
We noted earlier that the NFP is a major economic indicator, and that there is a strong likelihood that the currency markets will move after the NFP is released. Will the US dollar move up or down? That of course, is the million dollar question which nobody can predict, but we can use a general rule to help us make an educated guess:
NFP is higher than the estimate >> dollar will likely move higher
NFP is lower than the estimate >> dollar will likely move lower
However, this rule is not absolute, and another factor that we need to keep in mind is the previous release (one month earlier). If NFP showed a higher gain in the current reading compared to the previous reading, but fell short of the estimate, the dollar could still rise because the indicator improved in actual numbers, despite falling short of the estimate.
There is of course, the possibility that the markets will not show much movement at all following a major release like NFP. This could happen if the actual reading is close to the estimate. However, if the reading is significantly higher or lower than the estimate, there is a strong chance that the dollar will respond with some movement.
Duration of NFP release on markets
Economic indicators like NFP are considered short-term market movers. This means that the dollar often reacts immediately after the indicator is released, but in some cases, the NFP reading can affect the markets for up to 2 or 3 days. This means that market volatility is most likely right after the release of NFP, but the markets can experience volatility well after the actual release time.
TIP: If there is volatility after the NFP release, it is likely to be at its strongest in the first few hours after the release.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Editors’ Picks
EUR/USD recovers to 1.1750 region as 2025 draws to a close
Following the bearish action seen in the European session on Wednesday, EUR/USD regains its traction and recovery to the 1.1750 region. Nevertheless, the pair's volatility remains low as trading conditions thin out on the last day of the year.
GBP/USD stays weak near 1.3450 on modest USD recovery
GBP/USD remains under modest beairsh pressure and fluctuates at around 1.3450 on Wednesday. The US Dollar finds fresh demand due to the end-of-the-year position adjustments, weighing on the pair amid the pre-New Year trading lull.
USD/JPY rises to near 156.60 as US Dollar Index refreshes weekly high
The USD/JPY pair trades 0.2% higher to near 156.60 during the late Asian trading session on Wednesday. The pair gains as the US Dollar trades higher, following the release of the Federal Open Market Committee minutes of the December policy meeting showed on Tuesday.
Editors’ Picks
EUR/USD Price Annual Forecast: Growth to displace central banks from the limelight in 2026 Premium
What a year! Donald Trump’s return to the United States (US) Presidency was no doubt what led financial markets throughout 2025. His not-always-unexpected or surprising decisions shaped investors’ sentiment, or better said, unprecedented uncertainty.
US Dollar Price Annual Forecast: 2026 set to be a year of transition, not capitulation Premium
The US Dollar (USD) enters the new year at a crossroads. After several years of sustained strength driven by US growth outperformance, aggressive Federal Reserve (Fed) tightening, and recurrent episodes of global risk aversion, the conditions that underpinned broad-based USD appreciation are beginning to erode, but not collapse.
GBP/USD Price Annual Forecast: Will 2026 be another bullish year for Pound Sterling? Premium
Having wrapped up 2025 on a positive note, the Pound Sterling (GBP) eyes another meaningful and upbeat year against the US Dollar (USD) at the start of 2026.
Gold Price Annual Forecast: 2026 could see new record-highs but a 2025-like rally is unlikely Premium
Gold hit multiple new record highs throughout 2025. Trade-war fears, geopolitical instability and monetary easing in major economies were the main drivers behind Gold’s rally.
Top 10 crypto predictions for 2026: Institutional demand and big banks could lift Bitcoin
Bitcoin’s (BTC) adoption story is unraveling and the king crypto could see institutional demand return in 2026. Crypto asset managers like Grayscale are betting on Bitcoin’s rally to a new all-time high next year, and themes like Bitcoin as a reserve asset are emerging.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
I’m often mystified in my educational forex articles why so many traders struggle to make consistent money out of forex trading. The answer has more to do with what they don’t know than what they do know. After working in investment banks for 20 years many of which were as a Chief trader its second knowledge how to extract cash out of the market.
5 Forex News Events You Need To Know
In the fast moving world of currency markets where huge moves can seemingly come from nowhere, it is extremely important for new traders to learn about the various economic indicators and forex news events and releases that shape the markets. Indeed, quickly getting a handle on which data to look out for, what it means, and how to trade it can see new traders quickly become far more profitable and sets up the road to long term success.
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and selling pressure. Chart patterns have a proven track-record, and traders use them to identify continuation or reversal signals, to open positions and identify price targets.
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.
The challenge: Timing the market and trader psychology
Successful trading often comes down to timing – entering and exiting trades at the right moments. Yet timing the market is notoriously difficult, largely because human psychology can derail even the best plans. Two powerful emotions in particular – fear and greed – tend to drive trading decisions off course.