EUR/USD Fundamental Analysis for April 20, 2011

The market sentiment took a turn to positive on Tuesday and with it the EUR/USD turned higher.

The euro was bolstered by the quickening expansion in the German and euro area manufacturing sector, offsetting the decline in the services sector, which still remains in strong expansion and supported the odds for more ECB hikes this year.

Market woes also eased after Greece sold 13-week Treasury Bills even with the surging yields reducing the focus on the debt crisis for now. Good earnings from Europe and the US alongside the positive housing data from the US all helped ease the fears over the outlook for the global recovery that drained the market on Monday.

We have a toxic sentiment in the market and the jitters will keep the volatility for the euro predominant in the coming period.

On Wednesday there is little data from the euro area with only the German PPI on queue at 6:00 GMT. Prices at factory gates for March is projected to have continued to rise with 0.8% pm the month and 6.6% following 0.7% and 6.4% respectively.

Rising inflation, and especially from the engine for growth in the area is support for the euro with the focus on inflation and ECB tightening. The positive inflation figures and rising pressures will help the EUR/USD continue higher if the market sentiment remained positive.

The US existing home sales at 14:00 GMT might add support with the expected 2.5% rebound following 9.6% slump to 5.00 million units. The data if remained strong with the turning sentiment to positive the dollar will likely hold its weak grounds supporting the euro to continue the upside move.

High volatility is expected to remain with the sentiment mixed over the outlook for the global recovery.

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