U.S. LIQUIDITY RESEARCH
Dollar Liquidity Index Methodology for Macro Traders
An intermediate trading framework for reading QLI, FLI and ULI across regimes, horizons, confirmation signals and failure conditions.
QLI is a weighted average of direction-adjusted 13-week change z-scores for Federal Reserve assets, reserve balances, the Treasury General Account, overnight reverse repos, bank credit and commercial and industrial loans. It measures the direction and persistence of the quantity impulse rather than the absolute size of the balance sheet.
FLI combines level z-scores for SOFR, the SOFR–IORB spread, the effective federal funds rate, credit spreads, the National Financial Conditions Index and the broad dollar. ULI equals 0.60 × QLI plus 0.40 × FLI, but traders should retain the QLI–FLI split because divergence often matters more than the composite.
Formulas and weights are versioned. Mixed-frequency series use bounded carry-forward windows, unavailable observations remain missing, and every signal should be read against publication lag, price confirmation and a predefined invalidation level.
TRADING INTERPRETATION
From index reading to trade hypothesis
This framework assumes familiarity with z-scores, curves, credit spreads and cross-asset transmission. It does not generate mechanical entries; it compresses the liquidity backdrop into testable regime hypotheses.
Read the level
|Z| below 0.5 is broadly neutral, 0.5–1.0 marks a meaningful deviation and readings beyond 1.0 are more extreme. These are regime bands, not entry triggers.
Read the change
Compare the current level with its 30-day move and multiweek direction. Persistent improvement near neutral can matter more than a one-day spike that immediately fades.
Keep divergence
QLI measures the quantity impulse while FLI measures funding conditions. When they diverge, do not let ULI's average hide whether the setup favors direction or relative value.
Demand confirmation
Use credit spreads, the dollar, front-end rates and the target asset's trend as confirmation. Market prices confirm transmission; they should not circularly define liquidity.
QLI × FLI regime matrix
| Quantity | Funding | Macro read | Trading research focus | Main invalidation |
|---|---|---|---|---|
| QLI ↑ | FLI ↑ | Broad easing | Higher risk tolerance; test confirmation in equities, high-yield credit and duration | Dollar surge, renewed spread widening or price divergence |
| QLI ↑ | FLI ↓ | Quantity improves, funding tightens | Favor relative value and quality differentiation over a blanket risk-on view | Funding stress spreads into credit, repo or offshore dollars |
| QLI ↓ | FLI ↑ | Quantity drain, price relief | Separate tactical relief from a durable regime turn; shorten the holding period | QLI keeps falling as market breadth deteriorates |
| QLI ↓ | FLI ↓ | Broad tightening | Reduce high-beta and liquidity-sensitive exposure; prioritize funding resilience | Facility use, credit-spread peak or a clear quantity reversal |
HORIZON
Match the holding period
- 5 days: noisy, best reserved for event windows and fast risk checks.
- 20 days: useful for monthly repricing and shorter transmission.
- 60–120 days: currently the more appropriate range for using ULI as a medium-horizon regime filter.
INVALIDATION
When not to trust it
- Key inputs have not been released and the composite relies on stale carried values.
- Policy or market-structure changes invalidate historical weights.
- Earnings, geopolitics or supply shocks dominate the target asset.
- Overlapping windows or short samples overstate IC and Sharpe.
Built from traceable sources
Federal Reserve and FRED series, New York Fed funding data, U.S. Treasury cash balances and cross-asset market prices.
Research information only — not investment advice.