Debrief · 23 September 2022 · Rate-hike bets build on the ECB and BoE

OvernightFriday's auction opened with a large gap to the prior close on macroeconomic fears that inflation will hasten following the UK's disastrous mini-budget. Longs were trapped into the open and looking for a reversal off heavy ON lows.

The openTheir hope for a positive reaction ended in despair, with the RTH auction opening at 3734.75, a 36-point gap to the prior close (3771), and suffering heavy initial losses, setting an IB low at 3702. Unable to get out of the IB mid, shorts then liquidated, taking another leg to the downside, with little or no liquidity being found at lower prices.

Mid-sessionDespite lower advertised prices, the auction would maintain a strong trend down until it hit 3660 (3 points above the back-adjusted yearly low).

The closeA strong counter-rally into the close swept through late sellers (a short-covering rally) to close at 3707, some 64 points off the prior close. A significant drop. HTF targets hit, and shorts cover into the close. The close was inside the IB mid, and I will be monitoring for the continuation of this reversal.

Day typeDaily, weekly auction OTFD. H 3735, L 3660, VPOC 3709, MID 3697, VWAP 3697, SETTLE 3705.

The PA reviewThe review starts the week before. Friday's open gap closed, but the auction failed at Thursday's close: Thursday's cash closing spike high. Then, from that Friday to the pre-Fed Wednesday, a balance from 3843 to 3919: the auction was coiling and building energy. FOMC brought a false break: shorts got trapped below balance, then drove the auction higher on Powell's comments that rates may eventually normalise. Then a selling imbalance post FOMC: the tone of the speech was that there was more to come from the Fed.

1. FOMC spike high, Thursday's cash closing spike high: short-term buyers get trapped at higher prices and then scramble to exit, adding fuel to the liquidation move below prior balance.
2. Thursday's auction consolidates lower.
3. Open gap: interestingly, the auction manages to close the gap, only just! Not convincing: longs trapped.
4. Buyers fail again to push back into the FOMC range: sellers are waiting at the FOMC lows.
5. Open drive lower: the ON auction traps longs who are unable to get paid, and they scramble to exit on the open.
6. The auction initially held above 3700, trapping more longs.
7. HTF targets hit, and shorts cover into the close.

ON auctionBalanced inside Friday's range. It opened below the close with an immediate test of the late reversal rally high at 3714. The auction then reversed lower to test the lower bounds of Friday's auction before finding buyers, and spent the session rotating and balancing inside Friday's range.

ON auction balanced; daily, weekly auction OTFD. ON H 3718, L 3771.5, VPOC 3698, MID 3696, VWAP 3691.

PlanI will be looking for moves below and above the ON auction highs and lows. Balance rules apply. The focus will be on the ON high, 3718, and the prior settle, 3707, for sellers to reject and revert back to the lows.

I will be looking for buyers to materialise at the Friday auction lows and the 3776 area. With a notable vPOC at 3680, the auction is showing a willingness to shift lower below the close. Bias remains to the downside.

Monitoring3718 highs, 3771 lows. Trading balance rules.

BuyersBuyers will want to continue the auction above the Jim Dalton afternoon PB high, 3714, and end the OTFD above 3735. Potential short covering above 3718, up to 3752 and 3780.

SellersSellers will attempt to defend the singles from Friday's auction, 3717 and 3735, and close back below Friday's mid, 3698, to consolidate. A push below Friday's lows, 3660, targets 3627.