What is an NFP Employment Report?
The US NFP Report is the most important economic report for global financial markets. Employment changes in the US non-agricultural sector affect the Forex market and even the stock market every month. This report will be published on the first Friday of the month. In this article, we want to learn more about this report and at the same time examine how to analyze and use NFP in transactions.
NFP letters are derived from Non-Farm Payroll. This employment index is one of the most important economic reports in the United States, and usually all investors and market participants try to make a profit by predicting the possible outcome of this report. The NFP Employment Index covers the number of jobs created in the past month in the US non-agricultural sector. Changes in non-agricultural employment can provide a good picture of the health of the US economy.
Why is NFP reporting important for Forex traders?
The US labor market is highly correlated with consumer spending. The more jobs created in a month, the higher the level of consumer spending. In fact, when the monthly employment growth in the United States is strong, investors also expect the consumption of American households to increase. An increase in consumer spending will eventually lead to an increase in GDP. At the same time, the United States has extensive trade relations with other global economies. This means that American households and consumers are one of the main customers of goods and services produced in other global economies. So when US employment growth is strong and consumer spending rises, so does the subconscious demand for goods and services in other global economies, which contributes to global economic growth.
How to interpret the US NFP report?
The forecasts and expectations of economists, investment banks and micro-investors are usually collected and displayed in the Forex economic calendar before important economic reports are published. In the economic calendar of Forex Iran Bourse Online, you can see the time of publication of the NFP report, the previous value of the index, the forecasted market value and the real or current value of the NFP index.
Usually, to interpret the US NFP index, three scenarios have to be considered:
The NFP is in line with market forecasts: In this case, the market does not react seriously to the report.
The NFP outperforms market forecasts: This is a bad sign for the US economy and usually has a negative impact on the US dollar. Poor US employment growth can lead to recession (Note: If strong risk aversion is not present in the market, the dollar will usually react negatively to the decline in the NFP index. But if strong risk aversion is present, the US dollar due to Safe and valuable assets will be strengthened).
The NFP is better than the market forecast: Strong US employment growth is a positive sign for the US economy and can support the US dollar.
It should be noted here that the degree of deviation of NFP data is very important with market forecasting. The greater the deviation between market forecasting and actual data, the more severe the market reaction to the NFP index.
The release of the US NFP Index could severely shake the Forex market. But there are times when the market does not respond to the report at all. Why? Suppose the market predicts that US NFP employment growth will be 100,000 units. Let us now consider three possible scenarios at the time of the release of the NFP Index:
According to market expectations, the index shows a growth of 100,000 units of employment.
Contrary to market expectations, the index shows a growth of only 50,000 units.
Contrary to market expectations, the index shows a growth of only 150,000 units.
In the first scenario, because the market was ready to grow 100,000 units, the dollar and the Forex market did not react seriously. The report was allegedly leaked to the market.
In the second scenario, the market is shocked. Because US NFP employment growth was 50,000 units lower than expected. Poor US employment growth means poor performance of the US economy, weak inflation growth, declining consumer spending and no need to raise interest rates. So the dollar will react negatively to it.
In the third scenario, the market is shocked. But because the NFP data was much better than market expectations, everything is going to be in the US economy and dollar.