EUR/USD Fundamental Analysis for April 21, 2011

The EUR/USD surged higher on Wednesday as the dollar slumped and the common currency returned to the upside with the ragging return of the risk appetite to the market.

The euro surged to a 15-month high versus the dollar above $1.45 with abiding focus on the debt crisis and easing woes of Greek sovereign debt and the need for restructuring. Spain on Wednesday following Greece and found good demand on the auctioned bonds despite the rising yields which eased predominant woes.

Good manufacturing figures from the euro area and Germany on Tuesday was the first stone in the block to confidence. The euro more than reversed the losses attributed to the downside beat sentiment at the beginning of the week with investors eyeing high yielding assets and risk.

On Thursday, the week will be coming to an end with the Easter holiday starting Friday. The volatility is expected to be high with position squaring and profit taking after the rally alongside heavy data on the queue.

From the euro area, the market at 08:00 GMT will focus on Germany’s IFO confidence figures. The April Business Climate is expected with a drop to 110.0 from 111.1, the Current Assessment marginally lower at 115.5 from 115.8 and Expectations at 105.5 from 106.5. The data could be the trigger for some correction and might pressure the euro to the downside, especially if they worsened beyond expectations amid the high uncertainty for the global economy and with inflation and ECB tightening.

From the US at 13:30 GMT the start will be with the weekly jobless claims and expected with a slight decline to 393 thousand from 412 thousand the previous week, which should be good for the market and for the positive sentiment.

At 14:00 GMT we have the leading indicators for March and expected to slow to 0.3% from 0.8% signaling slower recovery expectations over the three-to-six coming months. The Philadelphia Fed Index is also expected downbeat with a strong drop to 36.0 from 43.4 which might weigh on the market and trigger dollar gains especially as investors lock on profits.

A volatile early end for the week is expected on Thursday and though the odds continue to favor the euro over the dollar on the positive sentiment, the EUR/USD might still be pressured with profit taking before the long Easter holiday.

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