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Reversal alert!

The U.K. FTSE index is down to the neckline of its head and shoulders pattern.

Will we see a breakdown and selloff soon?

FTSE Index (UK100): 1-hour

FTSE Index (UK100) 1-hour Chart

FTSE Index (UK100) 1-hour Chart by TradingView

I’m seeing a complex head and shoulders chart pattern on the hourly time frame of this U.K. stock index, as the FTSE 100 is still moving sideways.

The bottom of its short-term range happens to be right on the neckline of the reversal formation, so a breakdown below the 7,880.00 area could confirm that a larger downtrend is underway.

Technical indicators are still pointing to the presence of bullish pressure, though, as the moving averages made an upward crossover while Stochastic is indicating oversold conditions.

If the range support holds, another bounce to the resistance at 7,960.00 could follow.

Then again, market sentiment and fundamentals might override these signals since risk-off flows have been surging in the past trading sessions.

This comes after Fed Chairperson Powell’s very hawkish remarks, which focused on the stronger likelihood of higher U.S. borrowing costs in the near-term.

In his testimony on the Semi-Annual Monetary Policy Report before the Senate Banking Committee, the Fed head honcho said “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.

Not surprisingly, risk assets such as equities and commodities took major blows in anticipation of subdued business and investment activity down the line.

With that, global equity indices could start taking cues from top-tier U.S. data lined up throughout the week, as these would likely add weight to the Fed’s tightening bias.

Better keep tabs on Powell’s next remarks, as well as the NFP release and leading U.S. jobs indicators, to gauge if risk aversion could extend its stay for the rest of the week or longer!

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