What is NFP Week??
If you are a trader and haven’t been living under a rock you are entirely aware of the dangers during NFP week but what is it about the NFP that makes it so volatile?
The NFP or “non-farm payroll” figure is a key economic indicator for the United States economy. It represents the total number of jobs added minus farm employees, private household employees, government employees and employees of nonprofit organizations. The figure itself is important but can give you insight into the strength of the economy as a whole as NFP generally is a combination of previously announcements (ie initial jobless claims) and future announcements (ie interest rate).
This figure is announced during the first Friday of every month and when this figure leads to more jobs being created, the better the economy is which leads to a greater chance that the central bank will hike the interest rates. These higher rates attract buyers for the currency and all currencies that contain that currency will move aggressively. Among the US dollar, equities and gold also move aggressively.
The main reason this specific indicator can be so volatile is because of its impact on multiple sectors of the American economy: what the unemployment rate is in the economy as a percentage of the overall workforce, which sectors increase or decrease in jobs came from, average hourly earnings and revisions of previous nonfarm payrolls releases.
This mixture of data can cause a massive mixture of volume depending on what kind of weight the bulls and bears give each specific piece. For example, the unemployment rate could be the lowest in the history of the country leading some to believe that buying the dollar is the best decision but an aggressive low hourly earnings report can cause an equal number of bears to enter the market. With so many moving parts it is very difficult to accurately predict the impact of the NFP on the global currency market.
The most surefire way to avoid losing your shirt during these announcements is to simply protect your capital and steer clear of this news announcement. If you are in a profitable trade simply move all your positions into profit to avoid falling back into the red.