FED cuts rates, Biden wins, is it time to focus on NFP?

By Eliman Dambell

 

After Joe Biden stole the show on Super Tuesday, and the FEDs decision to cut interest rates by the highest level since the 2008 crisis, many now look to the remainder of the week for further fundamentals that could potentially impact markets.

With this week being the first week of March, many are now looking to Friday for potential opportunities created by the release of the US Non-Farm Payrolls report. The report typically gives traders an indication of the state of the US economy from the perspective of employment growth. Prior to its official release many market commentators, investment banks etc give their projections on what the potential number could be and this is shown on economic calendars like the below. These cover three sections The previous number, the projected number and the actual number which is traditionally left blank until the announcement has been made.  For the report coming this Friday, it will outline the jobs data for February, with the projection coming in at 175k jobs.

Source: Dailyfx

The recent run of releases has seen the actual number beat expectations, and has been one of the reasons behind US index markets trading at historical highs. However with the FED stepping in on Tuesday for an emergency rate cut. Many now believe this could be a preemptive move to control the potential volatility created if jobs growth come in lower than expected, due to the Coronavirus crisis.

So for a trader reading this, the question will likely be how can I not only trade this news announcement, but also potentially profit from the volatility it creates? Here is how.

What markets are impacted by NFP?

Each fundamental or Macro event will impact a particular set of financial markets. With Non-farm payrolls – the impact varies. However, here is the starting point. As it is a US Jobs report, the first point of impact will be the US markets. Whether it is equities or indices,  or even the US Dollar. The Jobs number traditionally creates price movement within these markets. Below is a list of the top 5 markets impacted by the NFP.

  1. Gold
  2. EURUSD
  3. Crude Oil
  4. SP500
  5. USDJPY

 

Traders look to the release of the number to see 2 things, which both will provide a different outcome in the way a market is immediately traded. First, looking to see if the NFP number beats the forecasted sum. If the number comes in better than expected, this traditionally means growth in US markets as more jobs have been created, so you may see a strong USD. Which in some instances could boost stock prices etc. On the other hand if the actual number fails to meet expectations, this may be seen as a negative sign for US markets. Any weakness in US markets is usually seen as a positive sign for safe haven markets like Gold, the Swiss Franc and the Japanese Yen.

Something to consider however is the following. Although the above can be accurate, there are other variables which could also impact price movement. So it is essential to never trade purely based on one piece of information and instead have a well rounded trading strategy.

 

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