Debrief · 9 June 2022 · The ECB breaks the 8-day balance, then CPI blows out

Into the ECBMonday, sellers traded into the prior day's VPOC, 4120. The low of the day was 4107.25, just below the prior day's close and the pWkSettle! Tuesday saw yesterday's lows rejected by 7 ticks: an open test drive. Crucially, this was at the lower extreme of balance and last week's lows, and the response from buyers was clear from the open, failing to break the ON low. Wednesday, the auction spent a lot of time making no ground above yVPOC and failed to break above yesterday's high (and low), leaving us with an inside day, closing just below the wkVPOC and in the middle of the 8-day balance. Big moves are coming!!!

ECBECB Thursday was the trigger for today's move out of the 8-day balance. It was not a given. Following the ON liquidation move after the ECB meeting, sellers tried to play the short out of balance early off the open, and failed. Buyers then pushed the auction back to the 4120 composite POC but failed to breach it. Sellers took control and forced prices below the stops created by 8 days of balance. (That's a lot of stops.)

The profileA P profile distribution day formed after a determined effort by longs to hold on after the initial drop on the open, which gave a messy early impression of the price action. The key clue was the location of the sellers: the VPOC of the multi-day composite at 4120. That is where they soaked up buyers and then started the move to the 79s, where the floodgates opened. 8 days of long and wrong, flushed out in an instant.

On the profile review I've boxed the upper and lower balance, and marked the absorption, the non-excess (NON XS), today's spike 4079-4014, and the 26/5 spike at 4028 with its spike extreme at 3990.

Day typeP profile, liquidation, 8-day balance BROKEN, breakout liquidation day. OTFD daily and weekly.

What nextOTFD on the week into CPI Friday tomorrow. Shorts will want to keep the auction below the spike base from the auction on Thursday 26/5 and target the 3990 lows from the same session. Given the extreme, emotive move, some adjustment may happen, so spike rules apply and we observe the extremes. Along the way there are a few levels to observe, marked out on the chart.

FinancialJuice reported:

• UK interest rate futures price in more Bank of England tightening, seeing bank rate at 3% by the March 2023 MPC meeting.
• ECB's Holzmann: estimates for the neutral rate are near 1.5%.
• ECB's Holzmann: the September rate move will be at least 25bps, but could be 50 or something in between.

07:30: major release, US CPI.

• US Core CPI YoY actual 6.0% (forecast 5.9%, previous 6.2%)
• US CPI YoY actual 8.6% (forecast 8.3%, previous 8.3%)
• US Core CPI MoM actual 0.6% (forecast 0.5%, previous 0.6%)

The number was a blowout, with a huge jump in inflation both monthly and yearly. The market was hoping for a slowdown in the post-Covid effects and the effects of the war in Ukraine.

Correlations and market reactionsPost data we saw a huge liquidity gap and then a continuation lower, with sellers seeking buyers while buyers wait for a lower price. Treasury yields are the driver. Global markets are worried about the Fed tightening into a slowing economy, and the Michigan data that followed the CPI only builds this narrative.

The lack of buyers is a contrast to the 8 days of balance, and it is a big change in the market regime. Trading these conditions is a skill: understanding PA and the higher time frame levels that preceded it is important if you want to execute safely.

Take the time to watch my live chart recording of the CPI release on Twitter. I have learnt to trade these events through participation and post-analysis, and recording your ladders is a cool idea. Tell me what you think: I will be making more of these videos.