Global Liquidity Index: Signs of Weakening Momentum

The AE Global Liquidity Index has seen a 0.5bn increase (+0.4%) over the past week and is currently standing at $130 trillion level, signaling an ongoing stagnation.

However, a noteworthy development to monitor is the behavior of the 3-month RoC.

The 3-month RoC has experienced a noticeable drop, now hovering just above the 12-month RoC. This narrowing gap suggests that the short-term momentum in #liquidity conditions is weakening.

If the current stagnation in GLI persists, the 3M RoC is likely to cross under the 12M RoC which signals a potential bearish shift.

This would indicate a reversal in liquidity momentum and could serve as a bearish signal for risk-on assets.

In the context of AE Global Liquidity Power-Law model, this could imply downward pressure or slower growth for liquidity-sensitive assets like Bitcoin.

Monitoring this transition is critical for anticipating the next major market move.

The ongoing weakness is unsurprising as central banks appear to keep a tight grip over injections.

While the Treasury General Account is beginning to reduce its balance, the Federal Reserve is playing a cautious game.

On a positive note, the MOVE index is back towards its 'normal' range (as highlighted in our recent post discussing the ±1 standard deviation range).

Additionally, the DXY, after hitting a new two-year high, appears to be losing upward momentum which could potentially be the first sign of a weakening dollar in the upcoming weeks.