Change in US nonfarm payroll from ADP. Impact of the news on the Euro/Dollar currency pair

For almost any trader who practices fundamental analysis and news trading, the release of fresh data on the number of people employed in the non-agricultural sector of the United States is just a tidbit that they simply can’t profit from.

The importance of the release of this indicator is very great, since the market almost always reacts strongly to it. The fact is that the number of employed people in a country is a direct indicator of the strength of the US economy.

We should not forget that there is a direct relationship between the growth of the employed population and the growth of the country’s GDP, because the more people work, the more the state can fill its coffers from taxes and reduce spending on unemployment benefits.

ADP Change in US Nonfarm Employment is a leading indicator derived from an anonymous survey of a large number of US businesses and approximately 400,000 individuals surveyed. Why do I claim that the news has a leading effect?

Yes, because this indicator is published two days before the release of official data on the number of people employed in the non-agricultural sector. In this way, we can be prepared for the release of official data and put the overall situation together before such important data appears.

An increase in the employed population always has a good effect on strengthening the US economy, which means that when positive data is released, as a rule, the dollar rises in value. If the number of employed people has decreased, this indicates a deterioration in the labor market, and as a result, a weakening of the dollar.

Despite the fact that we all understand that the publication of such important data has a strong impact on the movement of charts of currency pairs with the dollar, for successful trading we need more specific information.

Such information includes data on the number of points that the price takes after the release of the news, its behavior, the smoothness of the end of the news and, oddly enough, the approximate time of the news’s effect on the market.

The number of currency pairs in which the dollar is present is simply huge, so to analyze this news we will look at the price behavior of the most frequently used currency pair, Euro/Dollar. Changes in US non-farm payrolls from ADP are released every month, so for a more detailed analysis, let's look at the market reaction to news releases over the past four months.

On 07/01/2015 positive data were published, and if the previous value was 203K and experts were inclined that the growth of the employed population would not exceed 218K, then in fact we saw a significant increase to the value of 237K.

This situation tells us that the dollar will strengthen, and the euro will weaken against its background, so we should observe a fall in the chart of the Euro/Dollar currency pair . Example below:

If you analyze the chart, you will notice that the price reacted almost instantly to the publication of the news and moved 63 points. It is worth noting that after the chart crossed 40 points, there was a strong rollback to the starting point.

However, upon completion, the price confidently continued its downward direction. The effect of the news release lasted 7 hours, and its end was with a smooth transition into a narrow flat .

On 08/05/2015, the non-farm payroll reported at 185K, which meant negative data as most traders thought it would not go below 215K.

Against the backdrop of a strong weakening of the dollar, the euro should strengthen its position, so we should see an increase in the chart of the Euro/dollar currency pair. The market reaction can be seen in the example below:

Unlike the previous example, we can observe a strong price surge of one candle. The market reacted extremely strongly to the news and within five minutes the chart of the currency pair grew by 55 points.

The end of the news was as strong as its beginning, so we can see further strong price movement that blocked the original entry point.

On 09/02/2015, most traders perceived the employment data negatively, since against the background of the predicted value of 201K, 190K was actually received. However, if we compare it with the previous month, the data of which was 177K, then a decent increase immediately catches the eye.

Therefore, we can assume that the dollar will strengthen, and we will be able to observe a fall in the chart of the Euro/Dollar currency pair. How the market reacted can be seen in the picture below:

The market reacted more than adequately to the publication of the news and successfully covered the distance of 46 points.
The effect of the news lasted approximately 10 hours. On September 30, 2015, the number of employed people rapidly increased to the 200K mark against the previous indicator of 186K.

This tells us that the labor market situation is improving, which should lead to a stronger dollar. On the chart of the Euro/Dollar currency pair, we should see a rapid drop in the chart. We see the market reaction to the publication of data in the picture below:

 The market reacted well to the release of the data and successfully moved 40 points in the expected direction. The effect of the news lasted 1 hour and 25 minutes, and if you look at the end, you can see how the price smoothly went sideways.

Now let’s summarize the profitability of trading based on this news. If we analyze all the distances that the price has traveled since the news came out and choose the minimum value, which was 40 points, and set a take profit and a stop order equal to it, then in the end we get the following figures: 40+40+40+40=160 points of profit in four transactions.