It's not that it's not that the A320 is bad or not in the markets favour, it's just that significant players in the narrow body market, both jet blue and easy jet have called for something in between the 20 and 21, and airbus should seriously consider it.
Frankly a 40 passenger jump is huge considering that the competition have managed to successfully filled 4 sizes onto their 737 whereas airbus have only done 3. The size between the A320 and A321 is the missing member of the family.
An A320.5. how hard would it be to shrink the 321 by a few feet, if that's a viable option? There's no reason why it couldn't fly and be economically viable. In any case the 321 is pretty much on the limit of what the 320 wing can handle, and in many cases is too big for some airlines who need something bigger than the 320. Range is also another factor to consider.