US Non-Farm Payrolls And Automatic Forex Trading

There are many people involved in automatic forex trading that don't understand the significance of the US Non-Farm Payroll report to the global financial markets . I'm often asked, "why does the monthly US jobs number make the market jump up and down so much after it is released ?" To answer that question we must realize at what the US jobs number actually represents. Then we will have our insights as to why it makes the markets move like nothing else .

On the very first Friday of a new month, the US Non Farm payroll is then released. This report is put out by the US Bureau of Labor and Statistics and what it quantitatively measures , is the number of new jobs, outside of farming , created in the prior month by the US economy . It is of such importance because it reflects the overall health of the US economy and thus the global economy . Just remember, in the world, the US economy happens to be the largest and the single largest component that drives the US economy is consumer spending ; actually making up 70%! This means, in automatic forex trading, because a country's interest rates is the number one factor affecting the strength or weakness of its currency , you need to take a look at what actually drives those rates ; or the interest rate policy set by the US Federal Reserve . The jobs report is probably the single most important piece of fundamental data that the Fed uses in order to set their short term interest rates and because it works this way, often the Non Farm Payrolls report actually can, cause significant volatility across the markets .


Why does this report have anything to do with the short term interest rates set by the Federal Reserve? That's a good question ! If the jobs report is on the strong side that generally means that people are employed and resource utilization is high . This in turn means that companies are hiring workers and workers, or consumers, are spending money on things like eating out, shopping for clothes, etc and all of these things drive the economy ; they grow the economy or heat up the economy . There is more money in circulation when the economy is growing and it is important for the Federal Reserve to keep inflation in check . They cool the economy and keep inflation in check by raising the short term rates, or they lower short term rates to raise inflation and heat up the economy . So you see , so the job number is a huge factor , beneath the surface driving this .


When you're getting ready for your automatic forex trading day or week ahead , remember to take a look at the events calendar for the fundamental information that is scheduled to be released that upcoming day or week . If it's the first week within a month then on the Friday of that first week you'll have the Non-Farm Payroll report coming out because that is when it always comes out . If after the release of this report you want to take advantage of the market's volatility , just remember the following formula : If the jobs numbers are stronger than expected this usually means a stronger economy which means higher short term interest rates that lead to currency strength . On the other hand , if you find the jobs report is weaker than it was expected to be then this usually means lower short term interest rates that lead to currency weakness . It doesn't always happen this cut and dried, but this knowledge can give you a bit of an advantage over your competitors who are trading alongside you.

David F Dacosta - Is a private trader using technical analysis to do automatic forex trading & futures trading. David makes specific trade recommendations for a small select group of traders. He uses drummond geometry to make his forecasts. Click Here for training materials and a free forex trading forecast.