###POV: MARKETS CAUGHT OFFGUARD BY LACK OF....>

FOREX: ###POV: MARKETS CAUGHT OFFGUARD BY LACK OF EUR BUYING AMONG RESERVE

MANAGERS IN Q4

-IMF COFER data showed another fall in the USD's share of FX reserves (down to

62.7% from 63.5%) as reserve managers looked to other currencies (most notably,

the JPY) to make additions. The EUR was expected to feature heavily as a rapidly

building reserve, but this wasn't the case.

-Despite EUR reserves rising an impressive $85bln in Q4, the rise is misleading.

Close to half of the $85bln gain was revaluation of pre-existing EUR positions

and not fresh additions to reserves as was expected.

-Why were reserve managers put off by the EUR in Q4? Many Asian reserve managers

are unable to buy negative yielding bonds (almost every EZ 2yr gov. bond is

negative yielding) and, with the IMF continuing to integrate China's FX holding

data, this pattern could be becoming clearer.

-Some have speculated that the ECB may have dissuaded managers from adding EUR

to protect ECB policy which, if true, could hold serious implications for the

BoJ given the build in JPY reserves.