What is NFP Week? what effects can it have on the market?


What is NFP Week?

By: Seth Arnez on Oct 5th, 2021

Non- Farm Payroll (NFP) is released every first friday of the month. NFP mesures the amount of jobs gained in the United States within the previous month that aren't Farm related (forex, n.d). The Unemployment Rate, Average Hourly Earnings, and Participation Rate are included during NFP. The NFP, which is often the single most-watched economic event released on a monthly basis, is the driver of market movement and can have the biggest impact out of all other releases (Forex, n.d.).

What effects can NFP have on the markets ?

NFP week can have a positive and negative impact on the markets for most day-traders. During this week your outcome will be strongly be depending upon your fundamental analysis, and ability to utilize news to your advantage. Most Swing and position traders look forward to this week because of the big moves that will take place in the markets. Chances are Swing and Position traders are less likely to be effected by NFP Week due to the long-term positions that they are holding in market. On the contrary for scalpers and intraday traders NFP can be a big red flag due to thier short-term executions.

Among the reasons for the large reactions in the market during NFP is that the Federal Open Market Committee (FOMC) has a dual mandate to maximize employment and to stabilize prices (Forex, n.d.). Because of the "maximum employment" part of that mandate, the Fed examines NFP to help determine what interest rates will be in the future (Forex, n.d.). This has a large impact on the economy. Typically, when employment growth is high, the Fed will raise interest rates if inflation is in check, and when job growth is low, it will lower rates. NFP is a much more complex matter than simply determining how strong or weak it is due to expectations (Forex, n.d.)


What can we expect during NFP Week?

Typically NFP data is released on the first Friday of the month during the New York Session around 8:30 AM. During the weekday the markets can apppear very choppy and almost as if it is in an endless consolidation zone. A Trader can see less opportunities to enter the market during NFP due to the heavy consolidation. Candlestick Patterns that are expected during NFP week are doji's, marubozu's, & spinning Tops.


What are different ways to trade during NFP?


When you are utilizing your skills of deductive reasoning when placing a trade before NFP data is released in order to make a prediction as to which direction the market will go before it happens (Forex, n.d). Using this strategy involves careful risk management, as a sudden rise in the market could create gaps that theoretically could allow you to escape any risk-minimizing stops you put in place (Forex, n.d.). In other words, it would be wise to give whatever instrument you choose to trade a lot of room to move and oscillate. Approximately 2% to 3% is the target annual inflation rate most central banks would like to see around the world (Forex, n.d.).


A little more caution is needed when trading after the release, however, there are risks associated with it too. An immediate knee-jerk reaction to the NFP headline isn’t always an accurate reflection of market movement for the day (Forex, n.d). Many studies have documented that markets can be shaped like a V following NFP, where the spike goes in one direction then reverses within minutes or hours in the other(Forex, n.d.).

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