Forex Trading And Us Non-farm Payrolls

Many who are concerned with forex trading aren't able to understand the importance of the US Non-Farm Payroll report to financial markets on a global basis . Many people ask me , " why each month does the number of US jobs make the market jump up and down so much after it is released ?" To answer that question it is important to look at what is represented by the US jobs number . Then we will have our insights as to why it makes the markets move like nothing else .

On the very first Friday of a new month, the US Non Farm payroll is then released. It is released by the US Bureau of Labor and Statistics or (BLS) and the things that it does measure, is the new job number, excluding farming , created by the economy in the US the previous month. It is of such importance because this number is a reflection on the health of the economy in the US, and thus affects the global economy as well. After all , this economy is the world's largest and consumer spending is the main component driving the economy in the US ; actually making up 70%! This means, in forex trading, because the weakness or strength of a currency in a country is mainly affected by the interest rates in the country , you must look at the rates and what is driving them; or the interest rate policy set by the US Federal Reserve . The jobs report is probably the single most important piece of fundamental data that the Fed uses to set interest rates for the short term and because of this the Non-Farm Payrolls report can, and often does , lead to quite a bit of volatility in various markets .


Why does the jobs report have anything to do with where the Federal Reserve sets short term interest rates ? That's a good question ! If the jobs report is on the strong side this means that many people have jobs and there is high resource utilization. This means workers are being hired by companies and workers, or consumers, are spending money on things like eating out, shopping for clothes, etc and the economy is driven by these things ; they help to heat or grow the economy. There is more money in circulation when the economy is growing and it is important for the Federal Reserve to keep inflation in check . They can keep inflation in check and lower inflation by raising the short term interest rates, which cools the economy down , or they can raise inflation by lowering the short term rates, heating the economy up. So it's easy to see, so a big factor is the jobs number, beneath the surface driving this .


The next time you are trying to prepare for a forex trading day or the next week , take a look at the fundamental information on the events calendar that will be released in the next day or week . If you're in the first week of the month then on the Friday of that first week you'll have the Non-Farm Payroll report coming out because that is when it always comes out . If after the release of this report you want to take advantage of the market's volatility , simply keep the following formula in mind : A stronger economy usually is going on if the numbers of jobs are stronger than expected which means higher short term interest rates that lead to currency strength . Conversely , if you find the jobs report is weaker than it was expected to be then this usually means lower short term interest rates that lead to currency weakness . Of course it's not always this cut and dry or black and white , but knowledge of these general parameters will give you a leg up on your fellow trading competitors .