Volatile day yesterday in the currency space as investors reacted to poor economic data in all three of the main economic blocks world-wide, Europe (in Germany chiefly), the United States and China.

In turn that weakness fed through into commodity prices, leading to a downward spiral as weakness in oil prices, especially, tends to correlate strongly with downward pressure on the single currency.

Truth be told however, the Chinese data released overnight was not the main cause of weakness. Rather, pressure on the euro began to build following the release of weaker than expected German manufacturing sector survey data. Noteworthy in that respect, quite a few economists seem to continue to bank on Chinese economic activity hitting bottom in his quarter.

Yet when the selling truly gathered force was following the release of a considerably weaker than expected reading on the Philadelphia Federal Reserve Bank´s own regional manufacturing survey.

So, while the world´s central banks are clearly poised to react to any worsening of events in the Eurozone, for now they are still a tad wary of over-reacting. In the meantime, therefore, there seems to be room for economic indicators to weaken should financial tensions not recede.

In this regard, Eurozone authorities seem to be keenly aware of the dangers posed by the current situation, but continue to spar over how exactly to respond in the run-up to next week´s summit.

Lastly, investors do not seem to have been overly impressed by the release of the results of the private sector audit of the Spanish financial system.

AB