Trading around the NFP report in Asia

The NFP report is one of the most pivotal reports in the United States every month. It has an enormous effect on markets worldwide, including Asia (and thus Australia). While many different types of traders look for opportunities in this release, the pure time arbitrageur is perhaps one of the most consistent. These traders will look to buy and sell currencies around various levels ahead of this release.

What are NFPs?

The headline figure everyone watches is non-farm payrolls (NFP) – this figure reports how many people are employed across the US. A drop or rise in this number has significant implications for both the USD and global markets, as changes to employment can give clues as to where inflation may go next. Whilst slight variations depending on who you speak to, most individuals expect around 180K new jobs to be created in the month of January. With unemployment sitting at 4.1%, this would see employment figures reach approximately 1812K, representing a slight moderation on December’s number (1833K).

There are several caveats to this figure

It includes both the International Labour Organisation (ILO) and U6 measures of unemployment – both reporting higher numbers than that stated by the headline NFP figure. Regardless, markets will likely respond strongly to any rise or fall beyond these widely accepted expectations.

Average hourly earnings

The second critical information is average hourly earnings (AHE), which reports how much employees are earning per hour worked. There has been an upward trend in wages since 2016, with AHE increasing each month steadily since April 2016. The markets will watch this figure closely, but no one expects it to hit 3% (the level that the Federal Reserve is aiming for) in January; many are predicting the figure to land around 2.8%.

These traders are so successful with their strategy because they do not care about news at all. Their sole focus is on buying or selling within predefined price levels based on technical analysis. It means during significant events where volatility is peaking already, and it can be even more profitable because market makers are forced to leave their natural spreads. It goes into even more significant gaps between the bid and ask prices, which can be exploited quickly by the time arbitrageur.

Everyone wants to be a part of NFP day

Funds will pay attention to the news release and make their trades depending on what they feel is appropriate. These prominent players will often manipulate markets for a certain amount of time before other reports have been released or members of the FOMC have spoken publicly about what should happen with interest rates in the future. These additional factors add another layer to how pricing behaves around this event each month, meaning traders need to do their research before making strategic plays around this volatility.

In general, though, you need to look at Asia if you want to know where the most opportunity exists during NFP day. It’s because Australia will often move with America’s markets before other major regions have reacted. As a result, many of the price movements are determined by what happens in New York during the initial trading hours after this report has come out each month. When traders see that the market has responded one way (and perhaps continues), they may buy or sell into that momentum depending on their overall forecast of how things will end.

NFP effect on Asia

The NFP report has an enormous effect on Asia and can lead to significant moves in the price for months afterwards if it goes awry. The more people pay attention to news releases (or even rumours of news releases), the more excellent the opportunity to take advantage of these price swings.

Interested in trading around the NFP report in Asia? Contact Saxo today!

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