Global Liquidity Updates

The AE Global Liquidity Heatmap continues to show an increase in red plots, indicating a sustained deterioration in global liquidity conditions.

However, as mentioned in our weekly update—despite the Federal Reserve reducing its pace of tightening for the fourth consecutive week, the net liquidity rate of change remains negative.

DXY is currently pressuring a weekly resistance level which, if rejected, may act as the catalyst for China to start implementing easing measures.

While the current outlook definitely implies bearish price action and de-risking by a significant number of market participants, Q1 of 2025 still remains bullish from a macro standpoint.

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The Federal Reserve’s tightening pace has slowed for the fourth consecutive week, yet the net liquidity rate of change remains negative.

Notably, the RRP has dropped to levels close to zero, which could potentially push the Fed towards initiating QE.

Our earlier expectation of a significant Treasury General Account drainage around this time, based on historical trends, did not materialize.

However, looking ahead, there is a high likelihood that unresolved debt ceiling negotiations will extend into January 2025. If so, this could lead to substantial TGA drawdowns.

The MOVE index remains at low levels, which supports a favorable collateral multiplier.

Across the globe, China  has made big moves—this time with a negative impact.

The People's Bank of China  drained a net 643.5 billion yuan through 7-day RRP operations, the biggest drain since early November.

Despite this, we expect China to begin its first major easing operations once the DXY retreats from current highs.

Similarly, other central banks appear to be waiting for the US to take the lead before adjusting their policies.

Our Global Liquidity declined by 1.963t, representing a -1.50% drop this week.

With liquidity conditions worsening, the 3-month rate of change has now fallen below the 12-month rate of change, signaling very weak liquidity momentum.

While this could end up being a "false" signal, it's a signal nevertheless.

On the other hand, we remain confident that Q1 2025 is likely to present a more favorable environment for global liquidity and risk-on assets

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Ethereum has now aligned with its fair value within the AE Global Liquidity Bands, continuing its downward trajectory.

Historically, this zone has marked a pivotal point-where prices either stabilize, initiate a reversal, or accelerate their decline toward lower liquidity thresholds.

After such a poor YTD performance, all it took was a reclaim of the 3.5k level and ETH was quick to become a consensus trade on CT where many, including us, anticipated it being primed to outperform Bitcoin for a certain period.

However, without meaningful liquidity injections in the near term, ETH's performance continues to decline, increasing the likelihood of testing the bottom band.