FXstreet.com (Córdoba) - The euro trades firmer against the dollar on Wednesday and has extended its recovery from a 7-week low sub 1.3100 scored on Tuesday, as Italian yields eased after a rather smooth auction, and as dust settles after the elections outcome. Positive EU confidence data also helped to boost the shared currency and stocks. However and despite broad USD weakness, the EUR/USD has lacked momentum to climb back above the 1.3125 resistance area, which has been capping the cross since Monday's selloff.

The pound and the yen also advanced versus the greenback but commodity currencies are lagging, while stocks are posting gains for a second straight day in the US.

In the macroeconomic domain, US durable goods orders fell more than expected in January while pending home sales beat estimates. Bernanke's testimony was a non-event as he reiterated Tuesday's introductory speech.

Nick Bennenbroek, Head of Currency Strategy at Wells Fargo Bank, highlights the lack of conviction for today's currency moves and continued caution surrounding Italian political developments. "We expect to see some continued volatility in FX trading in the coming days given the potential for Italian political and U.S. budget headlines, with an overall bias towards U.S. dollar strength and foreign currency weakness", the analyst said.

EUR/USD better bid, but still vulnerable

Even though short-term picture has turned slightly positive, EUR/USD holds the negative tone in bigger time frames, with persistent inability to recover above 1.3125 adding pressure to the cross as the price develops below the 100-day SMA. Immediate bearish target for the EUR/USD is 1.2997, which represents its 2013 low scored back in January ahead of the 1.2960 zone.

On the upside, regain of the 1.3115/25 area (100-day SMA/Feb 26&27 highs) is crucial to ease the pressure although, according to the BBH analyst team, the euro can rise into the 1.3130/50 range without "really improving the technical tone".

Meanwhile, the TD Securities team comments that as the outlook has improved in Italy (the auction went off without a hitch, and expectations have improved that a coalition government can be formed), helping the EUR over the past 24 hrs. In Td Securities view, "there appears to be a bit more room for some back and filling of the EUR's losses through February. That could help see the EUR maintain a decent bid in the coming days, but we still think the single currency is a sell on rallies for the weeks ahead".

For the day ahead, the main European event worth keeping an eye on is ECB President Draghi's speech at 17:30GMT on the role of the ECB in the Euro Area crisis.