The non-farm payroll (NFP) report shows the variation in US employment for the non-farm sector. Data are released on the first Friday of each month (or the second), at 8:30 AM EST. The NFP report is one of most well-known market movers, as it always causes a great volatility in forex market. Empirical evidence shows it generates a 75 to 100 pip move in the Cable on average, in the minutes and hours following the release. When the number of NFP is much higher or lower than expected, the report can cause moves of 200 pips or even more.
Statistically, the Cable generates much more volatility than the EURUSD, following the NFP release. This is why many traders prefer to use it. In any case, it is always better to observe how both pairs behave soon after the report is released, in order to determine which is the better candidate for these strategies.
The best strategy to use adopts a 5 or 15-minute chart, as these timeframes smooth the initial volatility out, while allowing traders to capture a large potential move once the market participants make a more rational decision about whether they want to buy or sell based on the news.
The first thing to do is not taking positions soon after the announcement. A wide-ranging candle will be observed in the first minute, usually 40 pips or greater, according to the average daily volatility. If average daily volatility were to expand to 150 pips, a candle of at least 60 pips could be observed. If the candle following the release is smaller, it is better to stay out of the market. The best thing to do is never holding a day trade through the data release and taking trades after the NFP report is released, not before.
After some minutes an inside candle should appear, one where the high and low are completely encompassed within the prior candle. The inside candle doesn’t always immediately follow a wide-ranging candle. Depending on volatility and the strength of the initial push, a trader may need to wait for a couple candles in order for an inside candle to be observed. The appearence of an inside candle means that the market has calmed down and is likely to come back to a previous trend. The high and low of the inside candle become trade triggers. If the price rises above the high of the inside candle, a trader should buy. If the price drops below the low the inside candle, he should sell. Finally, a trader should place a stop loss below the most recent low if he has bought, or above the most recent high if he has sold, not exceeding a 30 pips measure. If the stop loss exceeds this value, a trade should not be taken.