When U.S. dollar liquidity goes down, it means that there is a tightening in U.S. dollar funding conditions. This coincides with a negative EUR-USD cross-currency swap basis.
Dollar borrowing conditions can be improved by implementing quantitative easing (QE). This will depreciate the U.S. dollar. One of the global effects of this is that emerging markets will benefit from this added U.S. dollar liquidity (see chart below).
Tightening of liquidity is best seen at the shorter end of the curve. See chart below when Deutsche Bank started to have troubles in September 2016.
As U.S. dollar liquidity tightens in September 2016, I expect that the Federal Reserve will initiate another round of quantitative easing to ward off such U.S. dollar liquidity panic.
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