Forex Trading Guide: September U.S. NFP Report

It’s almost NFP Friday, forex fellas! Y’all better start figuring out how you plan to trade this news release by taking a look at this trading guide.

What is this economic event all about?

The U.S. non-farm payrolls report shows the change in the number of employed Americans during the reporting period. As such, it is considered an indicator of job creation and a gauge of whether the labor sector is improving or not. Also included in the jobs report is the jobless rate, which shows the percentage of the work force that is unemployed and actively seeking employment.

Employment is an important component of the economy, as consistent gains in hiring could lead to stronger consumer spending. In turn, this could translate to increased manufacturing and production activity, which eventually lead to better economic growth and more job creation.

What happened last time?

For the month of August, the U.S. economy was able to add 142,000 jobs, smaller than the estimated 226,000 gain. This was the lowest monthly hiring gain so far this year and it marked the second month in a row that the U.S. printed a weaker than expected NFP reading.

Despite that, the jobless rate still managed to improve from 6.2% to 6.1% in the same month. Other components of the labor report also reflected progress, as the underemployment rate edged down from 12.2% to 12% while long-term unemployment also ticked lower. Average hourly earnings chalked up a 0.2% increase, indicating that wage growth was seen during the period.

What is expected this time?

Hiring is expected to pick up pace in September, as forex market watchers are expecting to see a 216,000 increase in employment, which should be enough to keep the jobless rate steady at 6.1%. Average hourly earnings could reflect consistent wage growth, with another 0.2% uptick eyed.

Apart from the headline figures, other employment indicators such as the participation rate or underemployment rate will also draw attention, as Fed Chairperson Yellen has repeatedly emphasized that she is watching several underlying data points to have a more thorough assessment of labor sector improvements.

How could the U.S. dollar react?

Since market participants seem to be casting bets on when the Fed might start tightening monetary policy, strong jobs data from the U.S. economy could revive rate hike expectations and give the dollar another strong boost against its forex counterparts. After all, many are expecting to see a significant rebound in hiring as weekly initial jobless claims for the past weeks have hinted at promising results.

As I always caution though, high expectations also tend to come with a high probability of disappointment. Another month of weaker than expected jobs growth could cast doubts on the Fed’s exit strategy time frame, as Yellen has also warned that monetary policy could remain accommodative if the economic recovery slows down. With the dollar rallies overextended, it would take a really upbeat NFP reading to sustain the Greenback’s climb.

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