The Employment Report

The Employment Report (or the Nonfarm Payrolls Report) is one of the most important and market-moving reports released every month. Indeed, it is THE most eagerly awaited report of the month. It moves the Forex market, the bond market, and the stock market in very big ways. Traders and investors around the world will watch for this report – and act on the data -- so traders must be positioned for its arrival.

The Nonfarm Payrolls Report measures the number of jobs created during the previous month.

First, the report is released only one week after the end of the month being reviewed. That makes the information very timely, which is uncommon for government reports.

Second, the report is very detailed about the job market and household income. Most people are interested in a country’s employment situation not only for personal reasons, but also because it gives an indication of the relative health of a country’s economy. This information is very useful for predicting the growth and stability of the economy.

The Nonfarm Payrolls Report is released on the first Friday of every month at 8:30am ET.

Traders around the world will watch the Nonfarm Payrolls Report. The jobs report will either increase or decrease the demand for the US Dollar.

A strong Nonfarm Payrolls Report will increase the demand for the US Dollar. The high figure makes the Dollar more attractive to foreign investors because the economy appears stronger. A strong jobs report could lead to higher interest rates to control inflation. If interest rates are increased, foreign investors will earn more interest income from owning US Treasury securities, which they will have to buy with Dollars. These reasons will encourage people buy the US Dollar, which will make its price and value increase. Any opposing currency in the currency pair will simultaneously decrease in price and value.

A weak jobs report will reduce the demand for the US Dollar. A low employment figure could mean that the US economy is softening (weakening), which would reduce the demand for the US Dollar. People will seek other (non-Dollar) investments if they consider the US economy unhealthy or an otherwise less attractive place for their currency. Also, a weak jobs report puts downward pressure on interest rates to loosen up more money, which reduces demand for the US Dollar.

Strong or weak, the jobs report (particularly if it differs from the market’s expectations) is one of the biggest currency movers during any month. For traders looking to profit from strong trends and high volatility, the first Friday of the month is a high profit potential and high risk trading day.

However, many traders choose NOT to trade during the days before the jobs figure is released. This is not a bad idea! Too much volatility can raise the stakes too high.

Beginning traders could wisely stay out of the market during that time.