The Highlight Of The Economic Calendar?
There are certain events in the economic calendar that most forex traders will keep an eye on, regardless if they are technical traders, fundamental traders or a hybrid of both. One such event is the US labour department non-farm payroll. This report gives details on the number of jobs created outside of the farming sector (hence the name non-farm payroll), the rate of unemployment, productivity levels and average earnings among other figures. It is considered very current information because it is released just days after the end of the month.
Number of jobs created
Typically, the most looked at figure, the headline figure, is the number of jobs created. This is considered to be so important because the Federal Reserve has a dual mandate, which includes maximising employment, in addition to moderating long-term interest rates. Generally, a number over 200,000 new jobs created is seen as a very solid reading. This number of new non-farm jobs created would normally boost the value of the dollar. This is because more Americans working means there are more US citizens earning money and as a result there are more spending money. In other words, there is more money entering into the system which theoretically increases inflationary pressures, increasing the odds of the Federal Reserve hiking interest rates.
More recently traders and analysts alike have been paying more attention to the average earnings section of the report. This is because, despite the US economy booming, inflation in the US is remaining stubbornly low. Given that average wages are considered a direct indicator for future inflationary pressure, the market is watching intently for early signs of an uptick.
Inflation in the US has been sluggish since around March last year. Since then, and even more so over recent months, even if the number of non-farm jobs printed above 200,00, if the average earnings reading was less than impressive, traders have been selling out of the dollar.
The non-farm payroll is usually released on the first Friday of each month. Some traders like to trade the release because of the amount of volatility which often comes straight after. Other traders like to avoid trading the non-farm payrolls for exactly the same reason. Always check on the economic calendar to confirm that the release. Vantage FX provides their clients with a clear concise economic calendar on their website, so you should never find yourself in a position where you are unsure of the high impacting economic releases.
What to trade?
US dollar versus the Japanese Yen, USD/JPY, is the most popular currency pair to trade around the release of the non-farm payroll, it often displays big moves. Other dollar majors, such as EUR/USD and GBP/USD also often display big swings around the release.
If you are thinking about trading the non-farm payroll, it is definitely worth looking at data across the month to try to anticipate whether you think it will surprise to the upside or miss expectations. For example, consider the ADP private payrolls and manufacturing and service sector data for clues on labour force levels. Finally keep a close eye on your risk management.