FXstreet.com (Córdoba) - The euro advanced versus the dollar on Thursday, extending its recovery from a 2-month low of 1.2660 scored earlier this week even though eurozone uncertainty is far from over and poor economic data.

Meanwhile, the standout move has been the drop in the yen, which weakened sharply versus the dollar after Japan's opposition party leader Abe, who is in line to shortly become Prime Minister at the next election scheduled for Dec 16, called for unlimited monetary easing from the Bank of Japan.

European markets were broadly lower, with the main exception of the Spanish Ibex, while Wall Street indexes are lower after a higher-than-expected reading on US jobless claims and disappointing manufacturing activity in New York and Philadelphia as Sandy storm took its toll in activity.

Euro's outlook improves, 200-day SMA key

The euro rose sharply and regained the 1.2800 mark at the beginning of the American session, with no clear catalyst for the move and with some analysts blaming short-squeeze for the latest rally. EUR/USD climbed as high as 1.2801 before easing slightly, and was last up 0.4% on the day at the 1.2785 area.

The outlook could improve significantly should the shared-currency regains the 200-day SMA (presently around 1.2811). A break above this latter would turn immediate focus to the upside, with 1.2840 and 1.2900 as targets. On the other hand, loss of 1.2700 could put the cross under renewed pressure.

However, "with Greek debt sustainability a long way off and Spain still dragging its heels on an aid request, the rally probably does not have too much further to run", says Jamie Coleman, Editor at ForexLive.com. "I like fading rallies toward 1.2850/75 with a stop above 1.2890, still looking for a 1.2500 target in the weeks ahead".

Meanwhile, the Wells Fargo team expresses that they are not entirely convinced by today's reasonably benign price action in the foreign exchange markets, "and our bias remains towards further weakness in foreign currencies in the period ahead". In the same line, TD Securities analysts argue that "the market is too preoccupied by the fiscal cliff, Greece, and geopolitical risks at the moment, which means headlines should still be the biggest drivers for now".