FXstreet.com (San Francisco) - Is the crisis over? Or has Italy formed government? Not yet, but Euro resisted above the 1.3060 area with the EUR/USD trading higher on Wednesday to test the 1.3150. Renewed risk appetite hurt the USD and put risky currencies on the green path. USD/JPY rallied to 92.50, USD/CAD fell to 1.0230 and the AUD/USD showed some signs of life.

FXWW's analyst Sean Lee remarked the importance of the 1.3060 level in a recent report, Lee was not sure about the downside, as he commented that the break in EUR/USD below Fibo support at 1.3060 "hasn't really been confirmed." The level supported on Tuesday and the EUR/USD traded higher on Wednesday.

Today, Lee points that the recent EUR/USD sell-off "looks to be losing momentum and with Sovereign bids ahead of the psychologically important 1.3000 level, it’s not surprising to see some buyers emerging after a 700 pip fall." According to Lee, the correlation between the EUR/USD and the EUR/JPY will be crucial, "obviously there is quite considerable scope for a bullish retracement but again much of what happens in Asia will depend on EUR/JPY."

The EUR/JPY has been trading in recovery mode as Japan is getting ready for the BoJ Governor nominations that are taking place overnight tonight. "Kuroda was the superior candidate among the frequently cited names," comments Marc Chandler, BBH's Global Head of Currency Strategy. "He has the strongest international standing and while a critic of the BOJ, did not advocate, as far as we can tell, the purchase of foreign bonds or changing the BOJ's mandate. "

After recovering the 121.00 area, the EUR/JPY is currently trading at 121.15, 0.80% above opening price action. Next resistance is at 121.35 (high Feb.26) and then 122.00 (psychological level). On the other hand, a breakdown of 119.24 (low Feb.27) would accelerate the descent towards 118.97 (low Feb.26) and finally 118.80 (low Feb.25).

Back to Europe, Mario Draghi commented that the ECB is far from point where they can have exit from stimulus measures in their mind. He affirmed the ECB is ready to act, paraphrasing his so-called "whatever it takes." In America, Fed Chairman said the Fed has not done a new review of its exit strategy while he reaffirmed his support of the central bank's stimulus policy.

What Italian election? EUR/USD bears aren't strong enough

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. In the same mood, Wall Street rallied on Wednesday to recover all of Monday losses with the Dow closing at 5-year high.

As for the short term, The EUR/USD is currently trading at 1.3130, facing the next hurdle at 1.3200 (psychological level) ahead of 1.3319 (high Feb.25) and 1.3371 (MA21d). On the flip side, a breakdown of 1.3042 (low Feb.27) would bring 1.3032 (daily cloud base) and finally 1.3019 (low Feb.26).

On the upside, a confirmed 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".

Jane Foley, Chief Currency Strategist at Rabobank, doesn't expect heavy movements in the short term as "while the EUR’s fundamentals have weakened on the back of the Italian election result, in an environment in which the Fed continues to maintain open-ended QE it will be very difficult for the USD to gain upside traction. Rabobank expects thet "EUR/USD could remain in a jittery range around current levels in the weeks ahead”, Foley concluded."

The Thursday ahead

With the effects of the Italian elections dying off, the cross faces tomorrow’s docket with hopes of extending the current bull run. Investors will pay attention to BoJ nominations as much of the BoJ measures and JPY prices will depend on who will be the new leader.

The euro calendar will kick in with a gauge of the Consumer Spending in France followed by the final Spanish Q4 GDP figures ahead of German jobless rate, and EMU/Germany CPI. In the United States, the second release of the Q4 GDP will be the star of the day.

- German Unemployment Change (Feb 28 08:55 GMT)

- German consumer price index (Feb 28 13:00 GMT)

- US Q4 GDP (Feb 28 13:30 GMT)

- Chicago Manufacturing PMI (Feb 28 14:45 GMT)