What to Watch For in May’s NFP

What to Watch For in May's NFP

The Nonfarm Payroll (NFP) is a highly anticipated economic report which signals the strength of the US economy. It is closely analysed to predict Gross Domestic Product (GDP) growth and inflation rates and has the power to move global financial markets. So, lets look at what to watch for in May’s NFP.

Three things about the NFP release:

Three things to note in the report:

Forex Market Reaction to the NFP Report Release

The NFP report typically causes big movements in currency pairs, especially those involving the US dollar. The most critical time for forex traders is half an hour before the report is released to around four hours after the release. While this is the period of maximum volatility, NFP could continue to cause price movements in the forex market for a couple of days after the release.

The extent of volatility in the forex market typically depends on the extent of surprise in the report. Even the direction of US dollar movements is determined by whether the surprise is positive or negative.

Let’s take a look at how the forex market reacted to a surprise from the previous report, released on April 6 2018. The number of new jobs created was reported at 103,000. This caused the US dollar to tumble – but why? Well, the reported figure was significantly worse than the previous one, which came in at 326,000. More importantly, it fell hugely short of expectations of 193,000 job additions. In fact, the greenback came under pressure despite the unemployment being at a 17-year low of 4.1% for the sixth consecutive month.

 

May 2018 NFP Report: Predictions

The NFP report in May is expected to show 195,000 new jobs created for April. The market also predicts the May report to show unemployment dropping from 4.1% to 4%.

The estimate for month-on-month growth in average hourly wages stands at 0.2%, versus the previous month’s 0.3% growth. This is in-line with the average growth recorded between 2006 and 2018.

The estimate for year-on-year growth in average hourly wages is at 2.7%. Any move toward the 3% wage growth level could send the US dollar surging, while a decline to the previous 2.5% level could weigh heavily on the greenback.

How to Navigate the Volatility Caused by NFP

Here are a few things to keep in mind:

May 4 2018 is an important date, not just for the NFP announcement. The Fed’s two-day meeting concludes on that day and the market awaits an indication of a June rate hike. The Fed’s stance revealed later in the day could significantly impact the US dollar.

 

 

 

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