The latest PBOC reserves showed a fall of $87.2bln at end-Nov
I highlighted the fall in my post earlier and suggested they could have been spent propping up the euro
That line of thought has been gathering some credence and a fair amount of the accelerated fall in EURUSD since the release is being attributed to the notion that the PBOC's resolve needs to be tested again as well as their need to support the yuan
Recent barrier defence on EURUSD at 1.0600 and 1.0550 was strong but eventually breached last week ahead of the ECB meeting but that wouldn't have counted in the last reserves count which was as of end-Nov
However there have been plenty of occasions during that month where PBOC support can not be ruled out with lines drawn in the sand and subsequent rallies
I've long mooted the idea of strong Chinese vested interest to support the euro. In the past few years they have been often noted propping up EURUSD in the dips and in June I highlighted the DNT interest when Greece was putting downward pressure on the ccy and most recently in my ECB preview last week.
I stand by that view but of course it begs the question of how low would the euro be now it weren't for that support, and that is the basis for the additional selling this morning. Can the PBOC continue to stem the flow ?
They certainly have a big enough war chest to make a very decent effort still at the moment.
