What Is The NFP (Non-Farm Payroll) & How Does It Impact The Crypto Markets?
As we are getting closer to the release of the next Non-Farm Payroll report which is released on the first Friday of every month at 8.30am EST (Today); we thought it would be ideal 💡 to write about:
- What exactly is the report
- How it affects the global economy
- In what way does it affect the cryptocurrency market
- What can we expect from the upcoming report?
The U.S. non-farm payroll report (also known as the non-farm employment report) is key data indicating the strength of the U.S. economy. We tend to see markets respond to the release of this data with subsequent huge moves; so for this reason, understanding how the NFP impacts the global and crypto markets is a great skill for traders and investors alike!
So What Exactly is the NFP?
The Non-Farm Payroll report basically tells us the change in the number of people employed during the previous month, excluding the farming industry and workers in a handful of other classifications.
This generally means that getting a higher than expected number (which is released on the ADP report a day prior) shows strong growth in employment and indicates that global investors are most likely to spend their cash, in turn strengthening 💪 the U.S. dollar. This is positive/bullish 🔼 for the dollar 💲. Inversely, a lower than expected number shows a weaker economy and this should be taken as negative/bearish 🔽 for the dollar 💲.
The Effect of NFP & the Crypto Market
Before we can see how the NFP report can affect the cryptocurrency market, we first need to understand why and how it affects the global market, as that is affected in the first instance.
WHY: Because jobs are the backbone of any economy and if more jobs are being created, the economy is strong and healthy. HOW: When jobs are created, that helps put pressure on employers to increase wages, which leads to a growth in spending.
As a result, the NFP report is watched closely and we often see fast moves happening in the forex markets almost immediately, as there is a direct relationship between the level of job creation and interest rates. If jobs and the economy are strong, interest rates will likely rise and so will the dollar.
Next, over in the stock markets, the NFP report has an effect on individual stocks/companies. For example, a decline in employment figures could have a hit on businesses that sell consumer discretionary items. These are not essential but ‘luxury’ items like appliances, electronics, high-end apparel, jewelry, entertainment, holidays, and automobiles. If large numbers of people are becoming unemployed, then they are less likely to spend their income on these ‘luxuries’.
This brings us finally to commodities. After the release of the NFP report, we will typically see the likes of gold, oil, and gas performing strongly whenever figures from the payroll report are worse than expected. This is because these are seen as a ‘safe haven’ investment compared to stocks for example, during times of market downturn.
Cryptocurrencies are also considered a commodity/safe haven and although traders do not usually trade the NFP like the forex traders, the NFP does have an eventual impact on the value of Bitcoin! Historically, when the U.S. dollar weakens, Bitcoin generally gains, thus leading to the NFP report ultimately being important to Bitcoin investors.
So how about the next NFP report published? What can we expect?
Well, May's jobs report is coming in with awkward timing and may be lower than normal as a result of various holidays last month. And the Fed has also indicated that there will be an increase of about 0.5% in interest rates over June and July. So the general consensus is that we will see a similar trend to that of the last few months with wages slightly rising and businesses continuing to seek and incentivize employees. Albeit the rate of change may be slightly cooling off.
With all that being said and as long as the report today confirms the above, we should see a continuation of the strength of the dollar which to Bitcoin (and the general crypto market) isn't the greatest of news for now. As long as the dollar keeps rising and maintains its strength, Bitcoin’s price will most likely decline. *Please note, historically Bitcoin has been correlated to the dollar in this way, however past results don't always result in today's performance!
So, many traders are getting their ‘trigger fingers’ ☝ ready awaiting the release of the NFP today. Please carry caution to the event in general, no matter what market you are observing or trading. And if you haven't seen what effect or even been made aware of the NFP at all before; why not take this opportunity to sit back and see how the markets respond to the report today. You can also look back at the previous months also and correlate it to your charts and see what patterns and correlations you can find.
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