Global macro overview for 14/07/2017:

Yesterday, FED Chairperson Jannet Yellen delivered the second part of the two-day semi-annual monetary policy testimony in front of the US Congress.

She basically reiterated most of the points of her speech yesterday and answered the questions from the US Congress Committee, who had additional doubts about generating 3.0% growth by the Trump administration over the next two years. Moreover, the US Congress Committee expressed more doubts regarding the ability of the Trump administration to boost productivity through tax reform, which is linked to a rather insecure fiscal policy. Nevertheless, Yellen expressed her point of view regarding the FED's balance sheet reduction and plans to shrink them later this year. The trajectory of further rate hikes is still under the influence of further inflationary pressures, which was more dovish in the conclusion than expected. Later she admitted that the fed funds rate remains somewhat below its neutral level and "because the neutral rate is currently quite low by historical standards, the federal fund's rate would not have to rise all that much further to get to a neutral policy stance." It means the current economic factors that are preventing FED from faster interest rate hike are all transitory and will diminish somewhat over time. All in all, FED Chairperson indicated that the central bank policy makers want first to reduce the balance sheet and then continue with additional gradual rate hikes, which are likely to be still appropriate over the next few years. Currently, the biggest concern for FED is inflation, which is the key uncertainty and right now it is running below their target. It has declined recently.

In conclusion, FED Chairperson Yellen gave some hints, that the September interest rate hike is off the table for now as the FED policymakers want to start to normalize the FED's $4.5 trn balance sheet accumulated since the financial crisis of 2007. Nevertheless, the gradual interest rate hikes are still possible later in 2017 if the economic data, especially inflation, will justify such a move.

Let's now take a look at the SPY (SP500 ETF) technical picture on the H4 time frame. After Yellen's testimony, the index rallied to almost new highs but eventually was capped at the level of 244.50. The next technical support is seen at the level of 243.72 and the next technical resistance is seen at the level of 244.70 - 245.00 (all time highs).