Non farm payroll employment is a compiled name for goods, construction and manufacturing companies in the US. It does not include farm workers, private household employees, or non-profit organization employees.
Why is the NFP so relevant?
This report is important because the US is the largest economy in the world and its currency (USD) is the global reserve currency. The many economies peg (tie) their currency’s value to the reserve currency, many commodities such as gold and oil are priced in terms of the reserve currency and the local economy’s debt is priced in terms of its own currency.
The Non-Farm Payroll report, because of its importance to the reserve currency, tends to move all markets: currencies, equities, treasuries, interest rates, and commodities. It does so immediately after the release of the economic data and sometimes dramatically
How does the NFP impact the USD?
A NFP which is stronger than the estimate (also known as the forecast) indicates that the labor market is stronger than what the markets expected, and the dollar often rises as a result. Why? Let’s use a stock market analogy to answer this question. Just like a company’s stock often rises after the company releases a strong financial report, so to the US dollar can be thought of as the “stock of the US economy”. Thus, when the US releases a strong economic report, the “stock” (US dollar) often rises against other currencies (such as the euro, pound or yen) as a result.
Conversely, a weak NFP report indicates that the labor market is weaker than what the markets anticipated, and a weak reading can push the dollar lower against other currencies.
Our experts have different point of views, techniques and feelings towards the Non-Farm Payrolls release. There isn’t one only way to approach it. The strategy to trade (or not) the release every trader should take is finally something to their choice.
We hope these different views shared here can help you to take your own one and successfully invest with Crest Options to manage your accounts on trading this very highly volatile macroeconomic event, NFP.
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