Non-Farm Payroll Implications for FX Traders

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NonFarm Payroll was a big disappointment for March 2015 as the key bright spot in the global marketplace, the US economy is starting to lose its luster.  Weak data in April is causing FX Traders to look for another disappointment in the US labor picture. Like most fundamental news pointsin the marketplace, there are three sides to every newsprint that FX traders need to understand. 

Reading the News Print

It's common to have a client call into a brokerage and asked why a currency pair has moved soo much.

The short answer is often that there has been a news release but that's not a fair answer because there's more than meets the eye in a news release. First, there is going to be an expectation of the news release based on the trend in fundamental news announcements and any developments from minor news releases and that expectations relation to the news release. 

Typically, whether the news release is good or bad, what causes traders to be confused about the move is two points. First, was this newsprint a large miss or confirmation of what was expected. As you can imagine, a miss from expectations will cause the currency to lose value whereas a confirmation or positive surprise will cause the currency pair to move higher. 

Volatility

Volatility is a fancy term that simply means prices moving aggressively relative to prior price history with less regard to direction. Because of the significance of nonfarm payroll for the US economy a large beat or a large mass will often result in a decent amount of volatility.

A result that is in line with expectations often disappoints traders who seek volatility for big moves to trade because the expectations are often priced in.

Future Interest Rates Direction

The Federal Reserve of the United States has kept interest rates at zero since late 2008. They, of course, are not the only central bank dealing with a sluggish economy but nonetheless they are faced with the question when will he raise rates of the historically low floor and will the economy be strong enough to handle that rate hike?

While one newsprint does not make a trend a series of non-farm payrolls showing strength or weakness has an impact on future interest rate decisions and what the market expects of the Federal Reserve view of the economy and how they're direct interest rates, which inevitably affects the value of the US dollar.

An Example

The recent disappoint in the US Non-Farm Payroll has multiple implications in FX. First, the credible question after a series of economic misses has gone from how many times the Fed will hike rates in 2015 after being near zero since late 2008 too if they will raise rates at all this year. Naturally, it would be normal to think this would weaken the US Dollar but that hasn't been the case due to some second level thinking. 

Analyzing the Aftermath of NFP

before the Non-Farm Payroll is announced on the first Friday of every month at 8:30 AM Eastern a trader should be aware of a few things. First, you should know what the market expectations are for the announcement. Second, and more importantly, you should be aware of key levels on the chart like price ranges of a prior extreme or prior correction so that if the volatility of Non-Farm Payroll causes the price to go into that range you might find yourself with an opportunity on your hands.

Many traders decide to take the morning of Non-Farm payroll off because the volatility doesn't affect the overall trend and is often more harmful to their emotions than it is beneficial for the trading account. Whatever you choose to do, what is important is how the market reacts after non-farm payroll in relation to the larger trend, whether or not it is confirmed or if a key level of support is broken on the chart, which would likely only happen on a very big news surprise.