How expert speculators trade the non-farm payroll

How expert speculators trade the non-farm payroll

The non-farm payrolls report is one of the most anticipated news releases on the economic calendar. Published on the first Friday of the month by the US Bureau of Labor Statistics, the report includes the change in employment figures for all jobs with the exception of farm work, the self-employed, non-governmental organisations and the military.

This month, the market is focusing less on the headline employment figure, and more on the data around wage growth in the US, which is released at the same time. This report is of particular importance because of the conflicting market sentiment around the US dollar.

Is the Federal Reserve really confident about the US economy?

Until recently, US monetary policy was relatively predictable. As expected, the US Federal Reserve had just raised interest rates and signalled that further hikes would follow this year and the next.

However, a bullish USD was not the immediate interpretation of the latest Federal Open Market Committee (FOMC) statement. In a major surprise, the Fed had removed the following phrase from the September 2018 statement: “The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2% inflation”.

This omission was immediately taken by the market as a precursor to the Federal Reserve halting its policy of interest rate rises. It saw the USD weaken as speculators sold off dollars in anticipation of a newly doveish Fed.

In response, Chairman of the Federal Reserve, Jerome Powell, moved to reassure the market that there had been no shift in policy. He dismissed the removal of the phrase “accommodative monetary policy” and stated that interest rate hikes would keep coming as needed. Powell insisted that the “US economy is strong, unemployment is near 50-year lows, and inflation is roughly at our two per cent objective.”

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Your non-farm payroll trading strategy

The markets will read the non-farm payroll release as signalling the strength or weakness of the US economy. In this context, the Friday release will set the near-term direction of the dollar.

How to trade if the non-farm payroll meets expectations

The Federal Reserve has a policy of regular interest rate hikes — until they see a reason not to. If the non-farm payroll release meets the expected 188,000 new jobs and the year-on-year average hourly earning of 3.0%, this would confirm the Fed’s stance and Powell’s confidence.

Traders who think the data will conform to expectations could consider buying USD. Keep in mind though that for a positive reaction in the USDJPY we would need to see a beat on both the jobs number and the hourly earnings.

How to trade if the non-farm payroll surprises the market  

If the information released is not in line with expectations, your trading strategy should differ. If there was only a relatively small difference, for example, if we see 200,000 jobs and average hourly earnings of 3.1%, then traders could buy when prices decline on the intraday price charts, which are charts based on 5-, 15- or 60-minute time intervals.

The non-farm payroll is the most important trading event of the month. Don't miss out! Sign up for a free Exness account today and make your first trade.