Jordan Kuzmanov explains Non-Farm Payrolls, the monthly count of private-sector jobs released the first Friday at 8:30 AM EST. More jobs typically push the Fed toward higher rates, strengthening the dollar and creating volatility across forex, equities, and gold. Markets widen spreads during NFP weeks, so traders should focus on major pairs.
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Hello everyone and welcome to another educational video from the Traders Academy Club. My name is Jordan Kuzmanov, I'm the chief trader in the TAC, and today we're going to talk very shortly but straight to the point about the non-farm payrolls, or as most traders and people I guess refer to it, the NFP. Now, first of all, let's go ahead and try to understand what is the NFP, the Nonfarm Payrolls. It is an economic indicator which is released on monthly basis by the US Department of Labor, and it's part of a report on the state of the labor market. I know that might sound confusing, but we're going to get over, um, the actual idea of NFP and what it does in a few minutes. So basically, uh, the report includes goods, construction, and manufacturing companies in the US. It doesn't include farm workers, private households, employees, and nonprofit organizations. Okay, the number that we're looking at when they release it every single month is basically representing the change in the payrolls compared to the previous month. This is the actual change, it's not the total. So, um, in case you're getting confused here, we must clarify it. So if we were to represent the NFP as a formula here, we can say that the total number of— not paired, this is paid, sorry, we have a typo here— paid workers minus the farm, government, private household, and the nonprofits. All right, and this is what the number basically is giving us. Not the number is giving us, but what it represents, right? Then, um, we need to understand why is it so important. Well, if we start to think about it, it's important because it is showing the health of the private sectors, okay? And as it shows the number of employed people during the previous month, excluding of course the farming industry. So traders care about the NFP Because it's talking— this economic indicator is talking about job creations and unemployment rates, okay? And job creating is basically one of the leading indicators when it comes to trying to understand where the economy is going, all right? It also shows a lot, uh, when it comes to consumer spending. Okay, and why do we care about these things? Because when we have a healthier economy, basically, uh, we have jobs. When we have jobs, people can afford to buy things. And when you can afford to buy things, okay, then the consumer spending is being increased. So it's kind of a closed circle. And when all that happens, chances are we're going to see Increase in the rates from the central bank, right? So this is more or less the correlation that we're going with here. Now here are a few very quick important facts. It is released usually on the very first Friday of the month, and it is released at eight thirty. EST time. Okay, if you're a trader, this part is probably also very important to you, and you can expect for the market to range more than usual during NFP weeks. That happens because, um, NFP, along with ADP of course, is one of the leading indicator showing us where the rates might be going set by the Fed, right? And that's why people usually are going to wait before this number is released so they can have more or less an educated guess of where the rates are going to go and naturally where the given asset— if you're trading whatever you're trading is going to go. When it comes to interpretation, uh, we can basically say as a rule of thumb one simple correlation here: the more jobs are created, the economy is going good, right? The economy is better if there are jobs. People are happy, we have money, we can buy stuff. And we mentioned that just in the previous slide. When that happens, we can expect the central bank to increase the rates. So more jobs usually means rates are going to be increased, and when they increase the rates, investors are attracted because this currency is giving more interest rates, and so on and so on and so on. We're not going to go and talk about inflation. We can just mention that the inflation, usually the bank, the central bank, will try to keep it below 2% or near 2%. Okay, just some extra tip and information for you if interested. Then we have the assets or the instruments which are most affected usually. Now, this is not 100% of the times happening. There are different reasons for that, like, uh, let's say the market already digested the information based on the expectations, so you're not going to see a lot of volatility, okay? Or the change in the numbers is not as big as expected. Could be a million other reasons, but usually if we're going to see volatility, uh, we're going to see it in these assets. And here we can say that usually it's a negative correlation to the NFP. Okay, so it's doing the opposite. We have the US dollar, the equities, uh, gold as well becomes pretty volatile, and As we are dealing with forex and we trade forex mainly, I took the right-hand side of this slide to explain about forex a bit more. Basically, the currencies that will be most volatile during NFP releases will be the currencies related to the USD. After all, NFP is an American indicator, right? So anything related to the USD make sense to become volatile. So you have the majors, of course you have many more pairs here, but if it comes to trading the NFP, keep in mind the spreads, okay? Usually the spread will be widening, so maybe you want to stick to the, um, majors where the spread would be, well, widened, but maybe not that much. Dorian tends to move really nice and gold. Okay, those are two of my favorites. So if you're going to follow any of them, please pay close attention to those. That that would be all, guys, for this video. I really hope you enjoyed it. 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