What is Non-Pharm and is it possible to make money on it
Non-Farm Payrolls is one of the strongest (most affecting the US dollar) reports, which is perceived by investors at the level of changes in the discount rate and GDP statistics. One of the fundamental analysis strategies involves betting on the growth of the US currency against the euro and the British pound in case of a positive report. But, alas, this strategy often turns out to be wrong. What is Non-farm, what is its danger and how to trade on it, read the review.
Non-Pharm – US Labor Market Statistics
Non-Farm Payrolls is a report on the change in the number of employees in the United States in all areas, including hospitality and services, except for seasonal agriculture. It is published once a month on the first Friday of the week at 15.30 or 16.30 Moscow time (depending on the time zone). Statistics are compiled on the basis of data from more than 400 thousand households in various industries. It is generally accepted that the increase in the number of employees is a positive signal for the US economy, which may lead to an increase in the discount rate. And the growth of the discount rate is the appreciation of the national currency. Collected by the Bureau of Statistics, published by the US Department of Labor.
In the economic calendar, data is reflected as follows:
- Fact. – the actual value of the indicator for the past month. The data appears when the report is published.
- Forecast – the forecast value of the indicator formed by investment banks before the publication of Non-Pharm. The forecast is formed on the basis of investor sentiment and such auxiliary data as changes in average hourly wages, the number of applications for unemployment benefits, the index of business optimism, etc.
- Prev – the value of the indicator for the month preceding the reporting one. Theoretically Fact. for example, July would have to coincide with the value of Prev. on the line for the August report. In practice, they do not match as the actual published posture data are reviewed and adjusted. And the correction can be quite tangible.
There are two options for making money on this event:
- Opening a deal immediately after the data is published. As practice shows, the predicted value in the dollar price has already been incorporated, therefore it is important that the fact deviates not from the previous value, but from the forecast. The course is influenced by a deviation of more than 40K people. The greatest volatility can be traced in the first 5 minutes, therefore, a deal must be opened literally in the first seconds. Then the statistics results can be recouped for another 1-2 hours.
- Placing pending orders in both directions and closing a losing order.
And now about a fly in the ointment. If you look at the statistics of exchange rate fluctuations in the dollar over the past 6 months, you will notice that the relative fluctuation of the exchange rate is insignificant, that is, the game is not worth the candle. Sometimes there is even no influence of Non-farm at all, since there are more expected factors (for example, US trade wars). The volatility of the first minutes can break stops and catch both pending orders, causing a loss. There are many reasons for volatility: data revisions, anomalies, institutional investors’ play, etc. Ultimately, the risk of losing money turns out to be far greater than the potential earnings. At least there are much more promising points for entering the market.
Output… How to make money on Non-farm? No way. The best strategy is to close all transactions in the dollar 30 minutes before the report is released. And since after the release of statistics it is better to wait a couple of hours and there is no point in opening a position at 17.00, then from 14.30-15.00 Friday until Monday morning the trader can rest. If you disagree with this opinion, we invite you to discuss it in the comments!