Non Farm Payrolls (NFP) measures the amount of jobs gained in the U.S. during the previous month that aren’t farm related. It is typically released on the first Friday of the new month, and also includes the Unemployment Rate, Average Hourly Earnings, and the Participation Rate. While all of those releases can have an impact, NFP is the main driver of market movement and is often times the single most-watched economic event that is released on a monthly basis.

Unlike men, not all economic news events are created equal. Some events create a lot of hysteria and knee-jerk reactions, whereas others barely cause a blip on the radar. The ubiquitous Non-Farm Payroll (NFP) report out of the U.S. is an example of the former.

So much attention is paid to the NFP report that pundits from across the financial blogosphere attempt to predict its eventuality and impact across a variety of financial instruments.

The large reaction is due in part to the Dual Mandate of the Federal Open Market Committee of maximum employment and stable prices. The “maximum employment” part of that mandate means that the Fed looks at NFP to help determine what interest rates will be in the future which has an outsized impact on the health of the economy. If job growth is strong, the Fed would typically look to raise interest rates assuming inflation is in check, and vice versa if job growth is weak. However, simply determining if NFP is weak or strong is another matter altogether due to expectations.

Consensus
The consensus expectation for NFP plays a large role in how the markets react to the data, with the median expectation of a group of professional analysts serving as the decision point. For instance, if consensus is 200k, and the number comes out at 205k, there may not be too much reaction to that figure as it ended up being almost exactly what the market anticipated. The further away from the consensus, though, the more significant the reaction.

Two Ways to Trade NFP

Before the release:
If you place a trade before the figure is revealed, you are using your skills of deductive reasoning to predict which way the market will go before it actually does. Risk management is vital to using this type of strategy as an unexpected figure can create gaps in the market that could theoretically jump right over any risk-minimizing stops you have in place. Therefore, it is wise to give whatever instrument you choose to trade wide breadth to move and oscillate to give yourself a better chance. Most of the central banks around the world would like inflation to grow at an annual basis of around 2% to 3%.

After the release:
Trading after the release is a little more cautious, but also comes with its own set of risks. The initial knee-jerk reaction to the NFP headline isn’t always the “end-all, be-all” of market movement for the day. It has been well documented that markets can mimic a V-shape post NFP, where the spike goes in one direction then reverses in the minutes or hours afterward.

Fundamental Analysis is a broad term that describes the act of trading based purely on global aspects that influence supply and demand of currencies, commodities, and equities. If you happen upon someone whom is touting chart patterns or overbought/oversold levels, you have crossed over into the technical analysis realm. Many traders will use both fundamental and technical methods to determine when and where to place trades, but they also tend to favor one over the other. However, if you would like to use only fundamental analysis, there are a variety of sources to base your opinion.

Central Banks
Central banks are likely one of the most volatile sources for fundamental trading. The list of actions they can take is vast; they can raise interest rates, lower them (even into negative territory), keep them the same, suggest their stance will change soon, introduce non-traditional policies, intervene for themselves or others, or even revalue their currency. Fundamental analysis of central banks is often a process of poring through statements and speeches by central bankers along with attempting to think like them to predict their next move.

Economic Releases
Trading economic releases can be a very tenuous and unpredictable challenge. Many of the greatest minds at the major investment banks around the world have a difficult time predicting exactly what an economic release will ultimately end up being. They have models that take many different aspects into account, but can still be embarrassingly wrong in their predictions; hence the reason that markets move so violently after important economic releases. Many investors tend to go with the “consensus” of those experts, and typically markets will move in the direction of the consensus prediction before the release. If the consensus fails to predict the final result, the market then usually moves in the direction of the actual result – meaning that if it was better than consensus, a positive reaction unfolds and vice versa for a less-than-consensus result.

The trick to trading the fundamental aspect of economic releases is to determine when you want to make your commitment. Do you trade before or after the figure is released? Both have their merits and their detractions. If you trade well before the release, you can try to take advantage of the flow toward the consensus expectation, but other fundamental events around the world can impact the market more than the consensus read. Trading moments before the economic release means that you have an opinion on whether the actual release will be better or worse than the consensus, but you could be dreadfully wrong and risk large losses on essentially a coin flip. Trading moments after the economic release means that you will be trying to establish a position in a low-volume market which presents the challenge of getting your desired price.

Geopolitical Tensions
Like it or not, some countries around the world don’t get along very nicely with each other or the global community and conflicts or wars are sometimes imminent. These tensions or conflicts can have an adverse impact on tradable goods by changing the supply or even the demand for certain products. For instance, increased conflict in the Middle East can put a strain on the supply of oil which then makes the price increase. Conversely, a relative calm in that part of the world can decrease the price of oil as supply isn’t threatened. Being able to properly predict how these events will conclude may be a way to get ahead of the market with your fundamental perspective.

Seasonality
The seasonality as related to weather is something that makes sense as the natural gas example pointed out above, but there are other seasonal factors that aren’t related to weather as well. For instance, at the end of the calendar year many investors will sell equities that have declined throughout the year in order to claim capital losses on their taxes. Sometimes it may be beneficial to exit positions before the year-end selloff begins. On the other side of that equation, investors typically come back to equities in droves in January, a phenomenon called “The January Effect.” The end of a month can be rather active as well as businesses that sell products in multiple nations look to offset their currency hedges, a practice termed “Month-End Rebalancing.”

Economic indicators, or economic releases, are vital components to consider when making trading decisions. While some releases like Employment data or Retail Sales gives us a snapshot of an economy’s strength or weakness, some are a bit more subtle in their ways and can actually serve as a leading supposition of what’s to come for the main releases. In the spirit of trying to predict how the more important indicators will fare, here are some leading economic indicators that could give you a clue of how they will turn out.

Consumer and Business Surveys
When looking at economic releases, we have to realize that everything is ultimately related to the habits and actions of consumers: Retail Sales is a direct measure of how much consumers purchase; Gross Domestic Product is a direct measure of the capital spent by businesses and consumers; Employment is directly driven by demand to make product that is purchased by consumers; the list goes on. Taking that knowledge in effect means that it is incredibly helpful to have a measure of the optimism or pessimism of consumers, and surveys deliver that to us. It is imperative to be cautious when trying to assess the impact of the surveys because they have a different time reference than the more vital reports.

Survey results are usually reported about a week or two after the surveys are conducted whereas a report like Retail Sales can be reported anywhere from two to six weeks after the month end. Therefore matching the timeframes for the various reports is an absolute necessity.

Purchasing Manager Indices
There are a variety of PMI reports that get released by a few institutions (ISM and Markit chief among them), and all have varying degrees of importance; however, among them all, the “flash,” or “preliminary,” releases are the most telling. The reasoning behind that importance is directly related to their timing. The flash reports are typically released mid-month or slightly after to measure how the month has been going so far according to purchasing and supply executives. The higher above 50 those readings are, the better the month is shaping up for them as they are showing growth. Conversely, if the figure is below 50, then that represents a majority of negative responses and could signal a pullback in that nation’s economy.

Vehicle Sales
Government is slow to release their official figures due to their desire to be accurate and probably a few bureaucratic reasons, but businesses tend to be a little more expedient. For that reason, Vehicle Sales for the previous month are reported almost as soon as the month ends while the government figures are released much later. The theory is that if vehicle sales are strong then, most likely, other forms of consumerism will also be strong.

These are just a couple of the leading economic indicators you can use to help yourself get a leg up on the competition, and the more you watch them, the more comfortable you can become in utilizing their knowledge.

Economic announcements, or new events, are a widely followed aspect of trading due to their influence on monetary as well as political policy. Therefore, it is important to know which announcements are going to create the most impact and volatility to take advantage of their movements. Here are some of the most widely revered events and their meaning.

Employment
Whether we’re talking about Non-Farm Payrolls (NFP) in the US or Employment Change in Australia, economic announcements about jobs are an incredibly important measure of the growth or contraction of a particular region. Many of the central banks around the world have “healthy employment” or some derivative of that as one of their mandates. So if employment isn’t performing up to the level they would prefer, they could adjust their monetary policy to boost it, therefore influencing a variety of other factors as well.

Consumer Price Inflation (CPI)
Almost always lumped in with employment on the mandates of central banks around the world is “price stability.” While there are plenty of measures for inflation including Producer Price Index (PPI), Import/Export Prices, Food Price Index (FPI), Retail Price Index (RPI), Wholesale Price Index (WPI), among others, the CPI is usually the most respected due to its proximity to the consumer. Most developed economies prefer their CPI to be around 1%-3%.

Central Bank Meetings
We watch other economic announcements so diligently to try and predict what the central banks will be doing with their future monetary policy. Therefore it only makes sense that we pay close attention to what they actually do when they make their decisions as well. Interest rate hikes or cuts, forward guidance on future policy, or even introduction of unconventional measures are things we have come to expect from these meetings and their effects are both immediate and long-lasting.

Consumer and Business Sentiment
The multitude of consumer and business sentiment reports that are released across the globe every month is staggering; however, they all play their part in shaping the market’s expectations for the future. Anecdotally, businesses are usually ahead of consumers in feeling apprehensive or optimistic for the future, and if both sentiment indicators are heading in the same direction, that is typically a stronger signal.

Retail Sales
One of the main drivers of developed economies is their propensity to consume. Retail Sales measures that consumption proclivity better than most other indicators and is widely followed because of it.

Earlier, we said that price action should theoretically reflect all available market information. Unfortunately for us forex traders, it isn’t that simple.

The forex markets do not simply reflect all of the information out there because traders will all just act the same way. Of course, that isn’t how things work.

 

This is why sentiment analysis is important. Each trader has his or her own opinion of why the market is acting the way it does and whether to trade in the same direction of the market or against it.

 

The market is just like Facebook – it’s a complex network made up of individuals who want to spam our news feeds.

 

Kidding aside, the market basically represents what all traders – you, Warren Buffet, or Celine from the donut shop – feel about the market.

Each trader’s thoughts and opinions, which are expressed through whatever position they take, helps form the overall sentiment of the market regardless of what information is out there.

The problem is that as retail traders, no matter how strongly you feel about a certain trade, you can’t move the forex markets in your favor.

 

Even if you truly believe that the dollar is going to go up, but everyone else is bearish on it, there’s nothing much you can do about it (unless you’re one of the GSs – George Soros or Goldman Sachs!).

 

As a trader, you have to take all this into consideration. You need to perform sentiment analysis.

It’s up to you to gauge how the market is feeling, whether it is bullish or bearish.

If you choose to simply ignore market sentiment, that’s your choice. But hey, we’re telling you now, it’s your loss!

 

Sentiment analysis is often used as a contrarian indicator.

There are a couple of ideas why this is.

One idea behind this is if EVERYONE (or almost everyone) shares the SAME sentiment, then it’s time to go hipster and trade against the popular sentiment.

For example, if everyone and their mamas are bullish EUR/USD, then it might be time to go short.

Why? Unfortunately, you’ll have to go further down the School to find out! Ha!

Another idea is that most retail forex traders (unfortunately) suck. Depending on where you find statistics, between 70-80% of retail traders lose money.

So if you know that these all these unprofitable traders who are usually wrong are all currently long EUR/USD….well, theeeeeen. 🤔

It might be a good idea to do the opposite of what they do!

Being able to gauge market sentiment aka sentiment analysis can be an important tool in your toolbox.

Later on in school, we’ll teach you how to analyze market sentiment and use it to your advantage, like Jedi mind tricks.

Whereas technical analysis involves poring over charts to identify patterns or trends, fundamental analysis involves poring over economic data reports and news headlines. (And even random tweets from a certain world leader before he was banned.)

Fundamental analysis is a way of looking at the forex market by analyzing economic, social, and political forces that may affect currency prices.

If you think about it, this makes a whole lot of sense! Just like in your Economics 101 class, it is supply and demand that determines price, or in our case, the currency exchange rate.

 

Using supply and demand as an indicator of where price could be headed is easy. The hard part is analyzing all of the factors that affect supply and demand.

 

In other words, you have to look at different factors to determine whose economy is rockin’ like a BLACKPINK song, and whose economy sucks.

You have to understand the reasons why and how certain events like an increase in the unemployment rate affect a country’s economy and monetary policy which ultimately, affects the level of demand for its currency.

The idea behind this type of analysis is that if a country’s current or future economic outlook is good, its currency should strengthen.

The better shape a country’s economy is, the more foreign businesses and investors will invest in that country. This results in the need to purchase that country’s currency to obtain those assets.

In a nutshell, this is what fundamental analysis is:

Forex Fundamental Analysis
For example, let’s say that the U.S. dollar has been gaining strength because the U.S. economy is improving.

 

As the economy gets better, raising interest rates may be needed to control growth and inflation.

 

Higher interest rates make dollar-denominated financial assets more attractive.

In order to get their hands on these lovely assets, traders and investors have to buy some U.S. dollars first. This increases demand for the currency.

As a result, the value of the U.S. dollar will likely increase against other currencies with lesser demand.

Later on in the course, you will learn which economic data points tend to drive currency prices, and why they do so.

 

 

To be able to use fundamental analysis, it is essential to understand how economic, financial, and political news will impact currency exchange rates.

This requires a good understanding of macroeconomics and geopolitics.

 

The opening of the Tokyo session at 12:00 am GMT marks the start of currency trading in Asia.

You should take note that the Tokyo session is sometimes referred to as the Asian session. 

One thing worth noting is that Japan is the third-largest forex trading center in the world.

This shouldn’t be too surprising since the yen is the third most traded currency, partaking in 16.8% of all forex transactions.

Overall, around 20% of all forex trading volume takes place during the Asian session.

It’s not all coming from just Tokyo though. There are other major financial centers in Asia such as Singapore and Hong Kong.

What’s interesting is that nowadays, more forex trading volume comes out of Singapore and Hong Kong than Tokyo.

Both Singapore and Hong Kong comprised 7.6% of overall volume each, while Japan had 4.5%.

همبستگی ارز

It’s time to learn about the different forex trading sessions.

Forex Trading Sessions

Yes, it is true that the forex market is open 24 hours a day, but that doesn’t mean it’s always active the entire day.

You can make money trading when the market moves up, and you can even make money when the market moves down.

BUT you will have a very difficult time trying to make money when the market doesn’t move at all.

And believe us, there will be times when the market is as still as the victims of Medusa.

 

This lesson will help determine when the best times of the day are to trade.

Forex Market Hours

Forex Market Hours

Before looking at the best times to trade, we must look at what a 24-hour day in the forex world looks like.

The forex market can be broken up into four major trading sessions: the Sydney session, the Tokyo session, the London session, and Trump’s favorite time to tweet (before he was banned), the New York session.

Historically, the forex market has three peak trading sessions.

Traders often focus on one of the three trading periods, rather than attempt to trade the markets 24 hours per day.

This is known as the “forex 3-session system“.

These sessions consist of the AsianEuropean, and North American sessions, which are also called TokyoLondon, and New York sessions.

Some traders prefer to differentiate sessions by names of the continent, other traders prefer to use the names of the cities.

(We prefer using city names but continents are cool also.)

DID YOU KNOW? The combined share of the top four trading centers, which includes London, New York, Singapore, and Hong Kong amounts to 75% of global FX turnover.

The International Dateline is where, by tradition, the new calendar day starts.

Since New Zealand is a major financial center, the forex markets open there on Monday morning, while it is still Sunday in most of the world.

Even though trading starts in New Zealand, it’s still called the Sydney session. Makes no sense but we don’t make the rules.

Until Friday, there is no time during the week when the market formally closes, although there is a brief lull in activity between about 19:00 and 22:00 GMT when most American traders have gone home and most Kiwi and Aussie traders are getting ready for work.

Other than the weekends, there are just two public holidays when the entire forex market is closed, Christmas and New Year’s Day.

Below are tables of the open and close times for each session:

Spring/Summer in the U.S. (March/April – October/November)

LOCAL TIME EDT BST (GMT+1)
Sydney Open – 7:00 AMSydney Close  – 4:00 PM 5:00 PM2:00 AM 10:00 PM7:00 AM
Tokyo Open – 9:00  AMTokyo Close – 6:00 PM 8:00 PM5:00 AM 1:00 AM10:00 AM
London Open – 8:00 AMLondon Close – 4:00 PM 3:00 AM11:00 AM 8:00 AM4:00 PM
New York Open – 8:00 AMNew York Close – 5:00 PM 8:00 AM5:00 PM 1:00 PM10:00 PM

Fall/Winter in the U.S. (October/November – March/April)

LOCAL TIME EST GMT
Sydney Open – 7:00 AMSydney Close  – 4:00 PM 3:00 PM12:00 AM 8:00 PM5:00 AM
Tokyo Open – 9:00  AMTokyo Close – 6:00 PM 7:00 PM4:00 AM 12:00 AM9:00 AM
London Open – 8:00 AMLondon Close – 4:00 PM 3:00 AM11:00 AM 8:00 AM4:00 PM
New York Open – 8:00 AMNew York Close – 5:00 PM 8:00 AM5:00 PM 1:00 PM10:00 PM

Actual open and close times are based on local business hours, with most business hours starting somewhere between 7-9 AM local time.

Daylight Savings Time

Open and close times will also vary during the months of October/November and March/April as some countries (like the United States, England, and Australia) shift to/from daylight savings time (DST).

The day of the month that a country shifts to/from DST also varies, confusing us even more.  And Japan doesn’t observe daylight savings, so thank you Japan for keeping it simple.

Now, you’re probably looking at the Sydney Open and wondering why it shifts two hours in the Eastern Timezone.

You’d think that Sydney’s Open would only move one hour when the U.S. adjusts for standard time, but remember that when the U.S. shifts one hour back, Sydney actually moves forward by one hour (seasons are opposite in Australia).

Keep this in mind if you ever plan to trade during that time period.

Dealing with DST is a pain but that’s what happens when a market trades around the clock!

It’s important to remember that the forex market’s opening hours will change in March, April, October, and November, as countries move to daylight savings on different days.

Trading Session Overlaps

Also take notice that in between each forex trading session, there is a period of time where two sessions are open at the same time.

For example, during the summer, from 3:00-4:00 AM ET, the Tokyo session and London session overlap

And during both summer and winter from 8:00 AM-12:00 PM ET, the London session and the New York session overlap.

Naturally, these are the busiest times during the trading day because there is more volume when two markets are open at the same time.

This makes sense because, during those times, all the market participants are wheelin’ and dealin’, which means that more money is transferring hands.

Now let’s take a look at the average pip movement of the major currency pairs during each forex trading session.

PAIR TOKYO LONDON NEW YORK
EUR/USD 76 114 92
GBP/USD 92 127 99
USD/JPY 51 66 59
AUD/USD 77 83 81
NZD/USD 62 72 70
USD/CAD 57 96 96
USD/CHF 67 102 83
EUR/JPY 102 129 107
GBP/JPY 118 151 132
AUD/JPY 98 107 103
EUR/GBP 78 61 47
EUR/CHF 79 109 84

From the table, you will see that the London session normally provides the most movement.

Notice how some currency pairs have much larger pip movements than others.