NZD/USD clings to modest gains above mid-0.7100s, lacks follow-through

The NZD/USD pair edged higher during the early European session and refreshed daily tops, around the 0.7160 region in the last hour, albeit lacked follow-through.

Following an early dip to the 0.7130 area, the pair managed to gain some positive traction and recovered a part of the previous day's slump to one-month lows. The uptick lacked any obvious catalyst and could be solely attributed to some short-covering from extremely oversold conditions on hourly charts. That said, any meaningful recovery seems elusive amid a modest US dollar strength.

The USD remained well supported by Thursday's upbeat US economic releases – the ADP report, Jobless Claims and ISM Services PMI. The stronger data indicated that the US recovery is gathering pace and fueled speculations that the Fed may bring forward the timeline for tapering its bond purchases. This was evident from the overnight strong move up in the US Treasury bond yields.

Hence, the market focus will remain glued to Friday's release of the closely-watched US monthly jobs data. The NFP report will be one of the most important pieces of economic data that would set the tone for the upcoming FOMC meeting later this month. A stronger NFP will further pose risk to the assumption that interest rates will stay low for a long time. This, in turn, should be enough to provide an additional lift to the USD and prompt fresh selling around the NZD/USD pair.

Heading into the key data risk, investors might refrain from placing any aggressive directional bets. This makes it prudent to wait for some strong follow-through buying before confirming that the recent corrective fall has run its course and positioning for any further gains.

Technical levels to watch