In fact, on every Friday at the beginning of each month the United States will release 3 main employment data namely:
- Average Hourly Earnings
- Non-Farm Employment change, NFP (Non-farm employment change)
- Unemployment Rate
Although there are three data released, traders prefer to refer to it as NFP data. There is a story behind why traders usually refer to it as NFP even though it is not the most important data, but I do not want to talk about this. We will continue to focus on how to trade this data released.
First of all you need to determine which data is the most important of the three data above. Ok, the order of data according to priority is starting with Average Hourly Earnings followed by NFP data and then Unemployment Rate.
Why is Average Hourly Earnings data the most important?
Because this is data that is the focus of the US central bank (The Fed). Because this data is seen as a proxy to inflation data, where when the wage rate increases it will cause inflation to rise as well. I think every one must be aware of the importance of INFLATION data to currency movements.
If the actual data of Average Earnings exceed expectations, it is good for the US dollar and will cause this currency to rise. If the opposite happens where the actual data is less than expected, it will weaken the US dollar.
Ok, the second is NFP (Non-Farm Payroll or Nonfarm employment change) data which is the change in the number of jobs in the United States either increasing or decreasing. Usually, we will compare the REAL reading with the EXPECTATIONS. If the actual reading is higher than expected, it is bullish on the US dollar.
Third, is the unemployment rate data which is the percentage of unemployed workers. If this data decreases, it is good for the economy and good for the US dollar. Vice versa.
How to trade when NFP is issued
I want to emphasize here, we will trade after the data is released. There is no market term because we need to gather information and analyze the data released first. Yes, it is necessary to quickly analyze, otherwise, we do not have time to enter the position.
Ok, let's take an example of NFP data that will be released this Friday (April 6, 2018). You can read and try to connect with NFP on the date you will face. This is just an example based on when this article was written.
Ok, like I said earlier we trade NFP after the data is released. So, WHAT KIND OF DATA DO WE WANT TO TRADE?
Here is what we need to do after the data is released by taking the USD / JPY example:
Buy USD / JPY
- If Actual Average Earnings data EXCEED Forecast data. For example, 0.40%> 0.30%
- If Actual NFP data EXCEED Forecast data. For example, 200k> 190k
- If Actual Average Earnings data is LESS THAN Forecast data. For example, 0.20% <0.30% OR 0.10% <0.30%
- If NFP Actual data is LESS THAN Forecast data. For example, readings less than 190k.
Buy USD / JPY during the downward spike
If Actual Average Earnings data EXCEED Forecast data. For example, 0.40%> 0.30%, but with NFP Actual data combination LESS THAN Forecast data. For example, readings of less than 190k, especially below 150k.
Sell USD / JPY during the upward spike
If Actual Average Earnings data is LESS THAN Forecast data. For example, 0.20% <0.30%, but with a combination of Actual NFP data EXCEED Forecast data. For example, 250k> 190k
Reminded again to all traders who want to use this method, YOU NEED TO QUICKLY ANALYZE after the data is released. For those who are less confident, try first in the demo account.
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