NFP Friday The Impact on the USD Analysis – 4th December 2020

What is the NFP?

The non-farm payroll (NFP) figure is a key economic indicator for the United States economy. It represents the number of jobs added, excluding farm employees, government employees, private household employees, and employees of non-profit organisations.

NFP releases generally cause large movements in the forex market. The NFP data is normally released on the first Friday of every month 15.30 GMT+2.

How does the NFP affect the Forex Markets?

The NFP data is released monthly by the Bureau of Labor Statistics and is a good indicator of the current state of the economy.

It is a very important indicator to the Federal Reserve Bank. When unemployment is high, policy makers tend to have an expansionary monetary policy (stimulatory, with low interest rates).

The goal of an expansionary monetary policy is to increase economic output and increase employment. And if the unemployment rate is higher than usual, the economy is thought to be running below its potential, and policy makers will try to stimulate it. A stimulatory monetary policy entails lower interest rates and reduces demand for the Dollar (money flows out of a low yielding currency).

NFP Volatility

The Non-Farm Payrolls (NFP) release creates volatility and widening spreads in the forex industry.

Any currency pair that includes the US Dollar will be affected in some way. Some of the most common currency pairs are EUR/USD, USD/JPY, GBP/USD, USD/CAD, USD/CHF, AUD/USD, and NZD/USD.

What to Expect from Today’s NFP

The main event this week is today’s non-farm payrolls; the consensus stands at around half a million.

It will be a particularly active day for USD/CAD, with balance of trade from both countries and a range of Canadian job data in addition to the all-important NFP. Both currencies have been facing losses this week unless today’s results can make the difference.

It is also worth noting that today’s NFP result might have bigger implications than usual.

Congress is weighing whether to approve another huge federal aid package for the unemployed and struggling businesses.

Congress has been deadlocked for months over another aid package, but a small bipartisan group of senators and House members are trying to get both parties to agree to a nearly $1 trillion stimulus before the end of the year that would extend unemployment benefits for millions of Americans, among other things.

A weak November jobs report could lend more urgency to their efforts.

Today’s High Impact Events

The times below are GMT+2.

15.30 – Canada Employment Change & Unemployment Rate

Potential instruments to Trade: CAD Crosses.  

15.30 – U.S. Average Hourly Earnings m/m

Potential instruments to Trade: USD Crosses.  

15.30 – U.S. Non-Farm Employment Change & Unemployment Rate

Potential instruments to Trade: USD Crosses & Gold.  

These events have the potential to influence the markets which means there is plenty of trading opportunities. 

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