Volatility means opportunity. A smart trader is always vigilant of what is happening in the market. He/ she understands very well that whatever the change is, there will be a price movement and knows very well that as long as there is movement in the market, there is an opportunity to trade. Hence, he/ she will always be on the lookout for changes in factors that influence the price.

One important factor that impacts the price in the forex market is news releases. The demand and supply in the market change with news about macroeconomic factors. Out of all influencing news releases, non-farm payroll, commonly known as NFP, influences the market the most.

What is NFP?

Provided by the Bureau of Labor Statistics, the NFP report is a great indicator of how the US economy is doing. It provides employment data in the US for the previous month but does not cover farmers and employees of the government, private households, and nonprofit organizations. This report is released on the first Friday of every month.

Why is the NFP Important?

It is an economic indicator that is watched by every market in the world. This is because it shows the economic condition of the most important economy – the US economy – whose currency influences all other currencies in the world either directly or indirectly. Hence markets all over the world eagerly wait for and keep a close watch on NFP data releases. Traders arrive at their decisions and act on the basis of the actual figures released by the NFP as well as forecasts that are released based on those figures. So big moves are expected to happen in the forex market following NFP releases.

What Does the NFP Contain?

A typical NFP report gives data about the total number of jobs added or taken away from the economy in the previous month. Thus it also contains data about the present unemployment percentage in the US economy. This is important because it is the unemployment percentage that the Federal Reserve follows closely in order to make their decisions and plans. Also, this data has a deciding effect on upcoming Central Bank policies.

Apart from the numerical figures, the psychological element is very important in such data releases. The data contained in the NFP report can be surprising at times and disappointing at other times. If the figures are not as per their expectations, they will initiate a sell-off of the US dollar, which in turn will push other currencies to higher levels. Whatever the reaction of the traders may be, the resultant price change in the market happens very quickly. Therefore, a blind trading decision based on the news will only put the trader in trouble. Traders should have a solid risk management plan and realistic stop-loss plans so as to ensure that they get a good profit from the price change.

How To Forecast NFPs using Price Action Charts?

Mere reading of the news will not help anyone trade efficiently. Important news information should be interpreted vis-à-vis price movement as depicted by the price action chart. When trading decisions are based on such interpretations, there is a greater possibility of arriving at consistent results. This is how a news release, which is just another piece of information, is converted into a trading decision that yields monetary rewards. This will be crystal clear from the example discussed below.

What you can see below is a selected portion from the economic data showing nonfarm payroll data for last week.

It was expected that there would be around 8000K job cuts due to the pandemic and other miscellaneous reasons. However, as you can see in the chart, to everyone’s surprise, more than 2509K jobs were added to the US economy.

Now let us see what our analyst had predicted about this. Exactly one week before this data was published, our analyst had predicted an up-movement in the figures (USD-JPY). How was he able to predict that when the NFP figures were not even published? That is purely based on technical details that he observed in the price action chart – or in other words, by noting certain standard price action patterns. Through his knowledge, understanding, and observation, he forecasted with accuracy that the price would go up instead of the general feeling that it would come down. This price movement pattern along with the analyst’s prediction is shown below.

As you can see, the analyst noted a bullish fakey at one point and had advised traders to initiate a BUY. A fakey is a price action pattern that shows that price may continue to move in the opposite direction. It means the larger players in the market have reacted to some important market event, causing the price to move back up in the opposite direction.

Now, from the chart given below, you can confirm that what our analyst had predicted actually did come true; the price moved more than 2000 points!

This is a classic example that news that is repeated at regular intervals can be forecasted pretty early by looking at price action charts.

This is not just about NFPs. All news releases can be interpreted in similar ways using price action charts. However, a modest preparation along this line is essential for you to achieve favorable and consistent results. You may refer to our articles to gain more insight into lesser discussed areas like this. However, if you need a more thorough understanding of the same, then you may contact the Axiory team to get professional help to learn methods that actually work and yield good results.


About Author

Mithun Girishan

Mithun Girishan is the founder of MMM (Mithun’s Money Market), a consulting firm providing quality training programs in capital markets. He is an investor, trader, coach and a continuous learner. In addition, Mithun provides consultation and mentorship to many retail investors and company directors across the globe for investments, trading and hedging their wealth in stocks and futures. His passion lies in exploring new avenues in financial markets as well as learning theoretical and practical economics and its application in daily lives. This has exposed him to a wide range of markets spanning from equity, commodity, forex, futures to options.

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