US Nonfarm Payrolls & Currency Strength

The release of US Non-Farm Payrolls (NFP) employment data is one of the most volatile economic events. Traders worldwide eagerly anticipate this data, placing large trades based on the outcome. When employment figures significantly deviate from market expectations, it often leads to lots of volatility in Forex and other markets.

The challenge for the Forex Trader is making sense of the market immediately after the news is released, as everything can seem to move rapidly.
This is where currency strength becomes a huge advantage. It quickly gives you an insight into which currencies, apart from the US Dollar, are in play, allowing you to focus on finding trades with related currency pairs.
We’ll use a recent NFP report as an example.
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Before the US Nonfarm Payrolls news release

The Non-Farm Payrolls report is due for release at 8:30 AM ET. Before then, the Forex market is generally calm, as traders await the announcement.

Below is the currency strength up to 8:20 AM ET, 10 minutes before the data release. You’ll notice that EUR, USD, and JPY currency strengths are all midrange, around 5. This suggests they are not trending i.e. ranging, which is typical in the pre-news period.

Currency Strength before US Nonfarm Payrolls new release

US Nonfarm Payrolls at 8:30 ET

The table below shows the Non-Farm Payrolls data, released at 8:30 AM ET. The most important figures are listed, along with their deviation from market expectations.
Release Time 8:30 (ET) Actual Expected Dev
Non-Farm Employment Change 254K 147K +107K
Unemployment Rate 4.1% 4.2% -0.1%
As you can see, employment exceeded expectations by 107K, and the unemployment rate dropped by 0.1%. Both these deviations are strong indicators of strength for the US Dollar.

How to decide what Forex pair to trades.

As expected, there was a sudden spike in US Dollar currency strength following the release of the NFP data. It surged to over 9, indicating a strong trend.

US Dollar currency strength after US Nonfarm Payrolls release
The next question is what Forex pair should we trade.
The best approach is to find a currency trending strongly in the opposite direction. In this case, the US Dollar is strong, so we should look for a currency that is very weak. Then, we can choose a pair that combines both currencies.
The currency strength chart below shows two potential candidates currencies: JPY and EUR.
USD, JPY & EUR currency strength after US Nonfarm Payrolls

We can see that JPY is extremely weak, dropping below 1. In contrast, EUR is around 4-5, indicating that it is not currently trending. Therefore, the USD/JPY Forex pair would be a much better candidate to trade than EUR/USD, as both USD and JPY are showing strong trends.

USD/JPY following US Nonfarm Payrolls release
Given the strong US Non-Farm Payroll data (107K above expectations and a 0.1% drop in unemployment), trading USD/JPY with the trend, entering on a pullback, would offer a better risk-reward opportunity.
Currency strength pull-backs can also be used as entry signals. In this example, the USD currency strength pulled back at around 10:20 ET. This was a good time to enter a USD/JPY long position with a tight stop.
If the Non-Farm Payroll data had been conflicting or closer to expectations, a reversal play on USD/JPY might have been a better option.

Key Takeaways

  • The US Nonfarm Payrolls data release generates lots of market volatility and Forex trade opportunities.
  • Employment data that deviates significantly from expectation can produce large currency moves.
  • When trading the USD, choose a Forex pair with a strongly trending currency moving in the opposite direction.
  • Currency strength charts are essential for indentifying what currencies to trade following a volatile economic news data release.

How to choose the best Currency Strength Meter?