Euro Slips Anew

The euro has broken down again and has been pushed through the $1.22 level. It is not as if the market needs new reasons to be bearish the euro, but the news that the market seems to be reacting to now is a Financial Times piece claiming, apparently without attribution, that China's State Administration of Foreign Exchange (SAFE) is reviewing its holdings of European bonds.

China is very secretive about the composition of its reserves and does not reveal them to the IMF for their COFER report. Nevertheless the FT note claims that SAFE has about $630 bln of euro zone bonds in its reserves. This is roughly 25% of their reserves as of March and is close to what the market assumed (namely that China's allocation largely mirrored the world's as a whole).

The FT acknowledged that a SAFE spokesperson refused to comment on the report.

Like other reports, it is difficult to know the veracity of the claims. One rule that we have found is useful when trying to one's head around China is that China does not leak. This would be, it seems, a leak. Therefore, while we suspect all investors must be thinking about what is happening in the euro zone, we don't see this as really news.

We recognize, of course that the euro has been sold off in thin NY afternoon dealings, but the euro has been trending lower after the bounce ran out of steam in early Asia, and especially since the start of the North American session.