Credit Agricole CIB Research discusses the USD liquidity outlook.

"The USD liquidity glut may be starting to ease, as highlighted by the renewed modest widening of the USD cross-currency basis swap spreads. The glut could dissipate further in part given the increase of US Treasury cash holdings at the Fed that reflects growing UST issuance and thus could drain more market liquidity. The Middle Eastern conflict could keep energy prices and US rates bid as well and thus help drain more USD liquidity," CACIB notes.

"Against this backdrop, we expect USD-positive FX flows – resulting from investments in US stocks, USTs and/or FX carry trades – to gain in importance as FX market drivers too, in a boost to the USD across the board. A potential easing of the USD liquidity glut in coming days could further magnify the FX market impact of the incoming data releases," CACIB adds.