OPPORTUNITY TRADE UNDER NFP
The US economic calendar is stacked with many events throughout the month but none is more anticipated that the release of Non-Farm Payroll figures. Non-Farm Payrolls also known as NFP, is reported monthly by the US Bureau of Labour Statistics to give a timely glimpse into employment changes inside of the United States. Ultimately this report can give traders insight into whether the US economy is expanding or contracting while directly influences the decisions of policy makers such as the US Federal Reserve. With this in mind let’s take a closer at this news event, so we can better understand NFP and its potential impact on marks.
First, NFP looks specifically at net changes in employment as jobs are created or subtracted in an economy in any given month. The term Non-Farm is used since farm / agricultural workers are not included in the employment count. The decision to not include agricultural jobs lies in these jobs being largely seasonal that could possibly produce small temporary shifts in labour reporting. For this reason certain government employees, private household employees and non-profit organization are also not included in the count.
NFP figures are known to have significant swings. Traders often speculate on these changes in NFP figures, which often causes market volatility on the day of their release, NFP numbers have been known to produce volatility in the Forex Market. Considering what occurred during the last month’s NFP release on a USD/JPY 5min chart. NFP was released at 8:30 am ET and the numbers came out at 227k, significantly better than initial expectations of 180k. During this time the USD/JPY declined as much as 91 pips in the first 5 minutes of trading. Over the course of the next 2 hours, the USD/JPY eventually fell as much as 113 pips!
Using fundamental analysis and historical data a short-term high risk position is traded winning traders up-to 1000x leverage and significant profit ratio because traders, retail and institutional (huge), make educated guesses (bets) before and during the announcement. The U.S NFP is a key fundamental announcement that happens every month, since a lot of people are trading it, that drives up volume and in turn leads to higher volatility (bigger moves) . This is all driven by market sentiment .
The term “monetary policy” refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit to help promote national economic goals. The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy.
The Federal Reserve controls the three tools of monetary policy—open market operations, the discount rate, and reserve requirements. The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee is responsible for open market operations. Using the three tools, the Federal Reserve influences the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.
Changes in the federal funds influenced by the federal Open Market Committee triggers a chain of events that affect other short-term interest rates, foreign exchange rates, long-term and range of Economic variables granting all positions/trades made on this special asset a high interest short- term profit margin.