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🌊 GLOBAL LIQUIDITY — THE INVISIBLE FORCE BEHIND EVERY FX MOVE
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💡 THE CORE IDEA
Currencies don’t move only because of data.
They move because of how much money exists globally and how easily it flows.
When global liquidity expands, risk currencies rise.
When it contracts, everything scrambles for safety.
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📊 WHAT IS GLOBAL LIQUIDITY?
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Global liquidity represents the total amount of money available in the global financial system.
Main drivers:
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Central bank balance sheets (Fed, ECB, BoJ, PBoC)
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Money supply growth (M2)
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Credit availability
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Cross-border capital flows
More liquidity = more risk-taking.
Less liquidity = forced deleveraging.
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⚠️ WHY GLOBAL LIQUIDITY MOVES FX
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1️⃣ Risk Appetite Control
High liquidity → investors chase yield → risk currencies strengthen (AUD, NZD, EM FX).
2️⃣ USD Dominance
Global liquidity contraction usually means USD shortage → USD strengthens aggressively.
3️⃣ Forced Position Unwinds
When liquidity dries up, leveraged positions close → violent FX moves.
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📉 LIQUIDITY CONTRACTION PHASE
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Caused by:
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Rate hikes
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Quantitative tightening (QT)
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Credit stress
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Banking stress
Effects:
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USD strengthens
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JPY & CHF strengthen
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EM currencies collapse
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Carry trades unwind
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📈 LIQUIDITY EXPANSION PHASE
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Caused by:
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Rate cuts
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QE
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Fiscal stimulus
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Credit easing
Effects:
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USD weakens
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Risk currencies rally
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Commodities rise
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Carry trades explode
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📊 REAL-WORLD EXAMPLES
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🌍 2020–2021
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Massive global liquidity injection
→ USD weakened
→ Risk currencies surged
🌍 2022
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Aggressive global tightening
→ Liquidity drained
→ USD reached multi-decade highs
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⚙️ PRO TIP — TRACK THESE INDICATORS
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Fed + ECB + BoJ balance sheet trends
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Global M2 growth rate
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Cross-currency basis swaps
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Stress in funding markets
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Sudden USD strength without data
These usually signal liquidity shifts before FX trends explode.
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🚀 TAKEAWAY
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FX is a liquidity market first — a fundamentals market second.
When liquidity flows, currencies trend smoothly.
When liquidity breaks, currencies move violently.
If you understand global liquidity,
you understand why trends begin, accelerate, and end.
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📢 JOIN MY MQL5 CHANNEL FOR MORE FOREX FUNDAMENTALS AND REAL-WORLD TRADING INSIGHTS:
👉 https://www.mql5.com/en/channels/issam_kassas
