Understanding the Market Movements of the Nonfarm Payroll
Forex traders tend to pay considerable attention to what is happening in the financial markets. It is worth noting that what is happening within an economy is equally important as are the sources of economic data. This is why traders will also spend time looking at economic indicators including the gross domestic product, housing stats and the employment reports. One such source of economic information is the Nonfarm Payroll report from the Bureau of Labor Statistics that will be revealed this Friday. Within this report, there is information on job growth, what is happening with unemployment, and comparisons of growth within different sectors of the economy.
What to Watch Out For
To make the most of the trading opportunities that will arise, you need to know what to look out for. To begin with, if the nonfarm payroll appears to be expanding, then it is an excellent sign that the economy is growing. For forex traders, this means that the USD shall also increase in its overall value. However, the pace of this growth is also worth noting. Growth that occurs too fast could be an indication that inflation is on the rise. When this happens, traders need to be careful in the way that they trade. It would be better to wait and see what is happening in the market then immediately jump into a trade.
You should also note how the level of the actual nonfarm payroll compares to the estimates that have been given on the same payroll. When the actual nonfarm payroll falls below the estimate, those in forex will anticipate that the currency is becoming weak. In this scenario, there will be more forex traders looking to sell their U.S. dollars. Fundamental trader, Abe Cofnas explains more in this video:
The Current Trend
Over the past few months, there has been a downward trend when it comes to job growth, which is against the predictions that have been given. Furthermore, the jobs that have been created have been in professions that earn lower wages. If the trend continues, then it is an indication that the expected growth in the economy has not been achieved. In the long run, this means that it will be challenging for the USD rates to go up, and this means there will be less confidence in the value of the USD.
It is expected that there will be some growth in the EUR/USD pairs. Therefore, what opportunities should a forex trader look forward to? A trader should set a reasonable limit on their traders, and seek a 1:1 risk to reward when first starting out. Furthermore, they looking at a bearish USD trade could help. In this type of trade, the long EUR/USD position will be more favored.
Any forex trader that is looking for trading opportunities should be prepared to face a scenario where there will be a declining unemployment rate which will weaken the USD. There is a possibility that this will increase the demand for the USD in foreign markets, but that demand may not be sustainable over the long term.