NFP Trading - Deducing Direction, Expecting Complexity
NFP trading is speculating on the value of the Non-Farm Payrolls US employment report. This is released on the first Friday of every month and is regarded as a key indicator of the economic health of the United States. It can be expected to affect a wide range of markets including currency pairs and precious metals and can have a potential impact exceeded (potentially) only by the FOMC Interest Rate decisions. It is released at a specific time, thus traders can take positions based on speculation about how this data will affect a particular market.
NFP can be seen as data which has an importance based on a number of features. Firstly, it has a broad reach, as it covers key industrial and service sector activity, reflected in a headline employment figure. Secondly it is a monthly release, thus it has a cyclical importance as it happens at the beginning of each month. It is well established as a news trading event, thus traders and computer programs either line up in unison to trade it, or stay away from affected markets around the time of release.
All this said, the outcome is complex, like the markets it affects. Often as not, the market will, if it is moved, oscillate, creating a pattern which is not really tradable. This may partly be a reflection of the cyclical nature of this news, meaning that the surprise element in news which can cause strong directional moves, is implicitly muffled. Contrasting this with FOMC, which may have a strong effect even if the news is as expected, simply because interest rates decisions can have an inherent effect on direction. However the effect of NFP can be more complex, including that strong growth may presage interest rate hikes, thus creating a complex oscillatory move, even in a surprise and vice versa for more negative news.
This said it can be the case that a strong surprise one way or another may result in a significant news trading directional move which holds long enough to make a trade, even later if it moves back to where it began. In effect something needs to sustain a move against the grain of oscillations, and it can happen. In certain conditions, NFP may have a reduced effect or very little at all, if the news is expected and aligned. So NFP can perhaps be seen as having a different kind of behaviour from FOMC, one more native to the complexity of the market but capable, when all the ducks are in an (unpredictable) row of sustaining significant, sharp, rapid, directional moves.
