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The upcoming U.S. non-farm payrolls (NFP) release on Friday is set to make some waves as employment data returns to focus for the Fed.

Can the U.S. show another big upside surprise in job growth like in February? Or will we see a disappointing figure for March? Here’s what you need to know if you’re planning on trading this event:

What is this report all about?

If you’re new to all this, then allow me to give you the quick gist on why the NFP is such an important event to watch. This monthly employment report indicates how many jobs were gained or lost during the reporting period, so it provides a pretty good picture of how the labor situation is faring.

We also get the monthly jobless rate which shows the percentage of the labor force (those who are able and willing to work) that is unemployed; a lower figure shows that more of those who want to work are working, which is a positive thing.

Forex: NFP
Forex: NFP

Employment reports like these serve as a leading indicator for economic performance since an improving jobs situation tends to boost consumer confidence.

This encourages them to spend more instead of being tight-fisted with their cash, leading to stronger domestic spending and production, as businesses try to keep up with the pickup in demand.

This allows the economy to grow and positive employment trends to carry on, with companies increasing hiring as they expand their operations. Pretty neat cycle, huh?

How did the previous releases turn out?

The U.S. economy has been churning out one stellar jobs report after another for the past six months as the NFP reading consistently surpassed market expectations and eventually brought the jobless rate to record lows.

In February, the economy added 295K net jobs and even showed upward revisions to previous reports. We also saw the unemployment rate drop by two ticks to 5.5% from 5.7% previously.

Wage growth was the lone disappointment as it ticked up by only 0.1% vs. the 0.2% forecast and 0.5% previous month gain. So, while more people were gainfully employed, the average pay didn’t budge much, adding to the broad issues with inflation.

But overall, forex traders took the net change and unemployment rate as a good sign that we may get interest rate hikes sooner than expected and pushed the Greenback higher on the release.

What is expected this time?

For the month of March, the U.S. is expected to have added 248K jobs, lower than the previous month’s big 295K gain. The jobless rate is projected to remain at 5.5% and the average hourly earnings could see another small uptick of 0.2%.

Looking back in recent history, two large upside surprises in a row is highly unlikely, but a drop back to the data trend is something we’re more likely to see and probably why economists are forecasting around the 250K area.

How could the U.S. dollar react?

Based on previous NFP releases, stronger than expected data typically leads to gains for the U.S. dollar while weak readings tend to spark a selloff.

After all, strengthening labor market trends could push forex traders to speculate of an earlier rate hike from the FOMC than later in the year.

Right now, it looks like low inflation and a cautious Fed are still the main arguments for an interest rate hike later than sooner, which makes the wage growth number possibly a much bigger catalyst than usual on Friday, especially if the net change and unemployment rate come in relatively close to expectations.

One of the last thing to remember about this Friday is that most banks will be on holiday in observance of Good Friday, so market liquidity will likely be extra thin and the reaction to the data may be extra volatile.

Overall, it’s been tough to bet against the U.S. and the Greenback for quite some time because of the likely Fed rate hike, but if we do see a weak NFP report, that might just be the catalyst the bears have been waiting for to get the recent USD reversal attempts really going.