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VIDEO TUTORIAL - Non Farm Payroll Prediction Strategy

5 February 2015, 15:11

Sergey Golubev

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Before getting started it is important to understand that economic releases are designed to try and give a picture of either:

What has already happened in the economy based on past numbers (referred to as a lagging indicator)
What is anticipated going forward based on past numbers. (referred to as a leading indicator)
What is happening right now based on current data. (referred to as a coincident indicator)

Economic indicators are designed to try and give a picture of the growth the economy is experiencing, the level of price increases or inflation that the economy is experiencing, or both.

One of the most important and therefore market moving economic numbers after GDP is the Non Farm Payrolls (NFP), which is released at 8:30 am on the first Friday of each month. Released by the Bureau of Labor Statistics the Non Farm Payrolls Number is meant to represent the number of jobs added or lost in the economy over the last month, not including jobs relating to the Farming industry. The Farming Industry is not included because of its seasonal hiring which would distort the number around harvest times as farms add workers and then release them after the harvest is complete for example.

As with GDP, there is a huge amount of data published along with this report, all of which you can see on the Bureau of Labor Statistics websiteю

In general increases in employment means businesses are hiring which means they are growing and also that more people are employed so more people have money to spend on goods and services further fueling growth. The opposite of this is obviously true for decreases in employment.

While the overall number of jobs added or lost in the economy is obviously an important current indicator of what the economic situation is, the report also includes several other pieces of data which can move the markets:

1. What the unemployment rate is in the economy as a percentage of the overall workforce.
This is an important part of the report as the amount of people out of work is a good indication of the overall health of the economy, and this is a number that is watched by the Fed as when it becomes too low (generally anything below 5%) inflation is expected to start to creep up as businesses have to pay up to hire good workers and increase prices as a result.

2. What sectors the increase or decrease in jobs came from.
This can give traders a heads up on which sectors of the economy may be primed for growth as companies in those sectors such as housing add jobs.

3. Average Hourly Earnings.
This is an important component because if the same amount of people are employed but are earning more or less money for that work, this has basically the same effect as if people had been added or subtracted from the labor force.

4. Revisions of previous non farm payrolls releases. An important component of the report which can move markets as traders re-price growth expectations based on the revision to the previous number.

#Non-Farm Employment Change, nfp, unemployment rate, Non Farm Payroll

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Sergey Golubev 2015.02.06 09:59 #1

Forum on trading, automated trading systems and testing trading strategies

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newdigital, 2015.02.06 10:57

Trading News Events: U.S. Non-Farm Payrolls (based on dailyfx article)

A 230K rise in U.S. Non-Farm Payrolls (NFP) accompanied by faster wage growth may heighten the appeal of the greenback and spur a short-term selloff in EUR/USD as it boosts expectations of seeing the Federal Open Market Committee (FOMC) normalize monetary policy in mid-2015.

What’s Expected:

Why Is This Event Important:

Indeed, a further improvement in labor dynamics may put increased pressure on the Fed to raise the benchmark interest rate sooner-rather-than-later, but the subdued outlook for inflation may prompt the central bank to further delay its normalization cycle as price/wage growth remains weak.

However, the rise in planned job-cuts paired with the slowdown in private-sector consumption may generate a weaker-than-expected NFP print, and a dismal employment report may generate a larger correction in EUR/USD as it drags on interest rate expectations.

How To Trade This Event Risk

Bullish USD Trade: Job/Wage Growth Exceeds Market Expectations

Need red, five-minute candle following the release to consider a short trade on EUR/USD
If market reaction favors a long dollar position, sell EUR/USD with two separate position
Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
Move stop to entry on remaining position once initial target is hit; set reasonable limit

Bearish USD Trade: U.S. Employment Report Disappoints

Need green, five-minute candle to favor a long EUR/USD trade
Implement same setup as the bullish dollar trade, just in the opposite direction

Potential Price Targets For The Release
EUR/USD Daily

Long-term outlook for EUR/USD remains bearish as the RSI retains the downward trend carried over from back in October 2013.
Interim Resistance: 1.1600 pivot to 1.6110 (61.8% expansion)
Interim Support: 1.1300 (161.8% expansion) to 1.1310 (100% expansion)

Impact that the U.S. Non-Farm Payrolls report has had on EUR/USD during the previous month

Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event )	Pips Change (End of Day post event)
DEC 2014	01/09/2015 13:30 GMT	240K	252K	-35	+25

December 2014 U.S. Non-Farm Payrolls

EURUSD M5: 46 pips price movement by USD - Non-Farm Employment Change news event :

U.S. Non-Farm Payrolls (NFPs) beat market forecasts as the economy added 252K jobs in December following an upwardly revised 353K expansion the month prior. At the same time, the unemployment rate narrowed more-than-expected to an annualized 5.6% to mark the lowest reading since August 2008. However, Average Hourly Earnings unexpectedly slowed to 1.7% during the same period amid forecasts for a 2.2% print, and the weakening outlook for inflation may push the Fed to further delay its normalization cycle as it struggles to achieve the 2% target for price growth. Nevertheless, the initial bullish reaction in the greenback was short-lived as EUR/USD worked its way back above the 1.1800 handle, with the pair ending the day at 1.1839.