The official changing of the guard will not occur until Chair Yellen's term expires on February 3, 2018. Market participants, expect Powell to continue along the scheduled path of balance sheet reductions as his term as Fed chair is likely to represent a continuation of Chair Yellen's monetary policies. Against the backdrop of cycle-low unemployment and modest economic growth, the new Fed chairman should be able to continue to gradually raise interest rates from historic lows.
In conclusion, Powell's nomination does not change the market participants outlook for monetary policy at this time. Given the strong economy and jobs market, inflation pressures gradually building and Fed officials broadening out the reasons behind hiking – such as financial conditions, asset valuations, and financial stability issues – the market participants are still sticking to the view of a December 2017 rate hike. This scenario is more than 90% priced in by financial markets. There are generally only two main risks that could change this view: potential for an economically damaging government shutdown and the absence of the agreement to raise the debt ceiling.
Let's now take a look at the USD/JPY technical picture at the H4 timeframe ahead of the NFP Payrolls data release. The market is still trading in a narrow zone between the levels of 112.94 - 114.47. The trading conditions are overbought, but the momentum indicator is still above its fifty level. Better than expected data will likely make the USD/JPY surge to the new highs, but the rally might be short-lived as there is a bearish divergence between the price and momentum oscillator developing on a higher time frame.
