5 Things to Remember When Trading the NFP

Planning on trading the NFP release this week? Here are five things you should take note of:

1. Solid jobs growth is expected.

After releasing a stronger than expected figure in February, the U.S. labor market is expected to follow it up with another solid hiring gain for March. Analysts are expecting to see close to 200K in net hiring for the month, as weather conditions continued to improve during the period.

If the NFP figure comes in line with consensus, it could be enough to bring the jobless rate down to 6.6%. Be on the lookout for potential upward revisions in the previous month’s reading also, as the ADP non-farm employment change saw a significant upgrade from 139K to 178K for February.

2. Yellen said the labor market is still weak.

Earlier this week, Fed Chairperson Yellen gave a speech saying that there’s considerable slack in the labor market and that it could continue to need support from monetary stimulus. Either she’s trying to calm the markets down after her interest rate hike hints during the FOMC statement or she knows something that we don’t!

Bear in mind that expectations are running high for the upcoming NFP release, which also means that the potential for disappointment is huge. Could Yellen be hinting at a bleak NFP reading?

3. Fed is no longer focused on the jobless rate.

While a strong NFP result and a decline in the jobless rate would put it closer to the Fed’s 6.5% target, the dollar’s reaction might be subdued since the U.S. central bank decided to forget about this threshold! FOMC officials have repeatedly emphasized the need to look at other labor market components, such as the participation rate or labor market turnover. Wage growth is also an indicator that is being closely watched so make sure you take a look at the average hourly earnings data as well.

4. EUR/USD tends to pull back after the initial reaction.

If you’ve been watching past NFP price action, whether it’s to grab quick pips off the event like Big Pippin does or just purely for deliberate practice, you’d know that most dollar pairs tend to make a strong reaction during the actual release.

If you take a look at EUR/USD’s 15-min chart during NFP Fridays, you’d notice that it usually makes a large reaction candle followed by a couple of retracement candles before moving in the direction of the initial reaction for the next few hours or until the end of the U.S. session.

5. Things could get crazy!

As with most top-tier news event, forex price action can get pretty cray-cray before, during, and after the report is released. This is because traders are trying to set their orders or even enter trades in anticipation of a strong or weak figure. And let’s not forget the profit-taking that typically ensues later on, leading to sudden reversals before you know it!

With that, make sure you practice proper risk management and set those stops right. If extra volatility ain’t your cup of tea, then I suggest you sit on the sidelines for now but watch the actual price action if you can.

How do you think the NFP will turn out this Friday? Cast your votes in our poll below or share your comments right here!