§2.13.2/4:
The escape \xhhh consists of the
backslash followed by x followed by
one or more hexadecimal digits that
are taken to specify the value of the
desired character. There is no limit
to the number of digits in a
hexadecimal sequence. A sequence of
octal or hexadecimal digits is terminated by the first character that is
not an octal digit or a hexadecimal
digit, respectively.
She is right.
However, you can terminate it early by eager catenation: the sequence of literals "\x000a" "axz" specifies a single four-character string literal. (2.13.4/3)
Also note that Unicode uses 21-bit code points; it doesn't stop at 16 bits.