The dollar rallied sharply yesterday while gold, silver, and US equities suffered heavy selling after reports that the Trump administration is preparing to nominate Kevin Warsh as its pick for the next Federal Reserve chair. President Donald Trump said he plans to announce his nominee on Friday. Market chatter suggested the decision was not yet final.

Warsh, a former Fed governor and one of four finalists on Mr. Trump's shortlist, visited the White House on Thursday. Other names on the short list include National Economic Council director Kevin Hassett, current Fed governor Christopher Waller and BlackRock chief investment officer Rick Rieder.

Warsh is known for his criticism of the Fed's policies during the post?2008 quantitative easing era. If he is appointed, policy would likely shift. A Warsh nomination would probably tilt the Fed toward a tougher stance, implying greater caution about further rate cuts and about expanding the Fed's balance sheet. That would affect inflation expectations, could weigh on corporate profits—especially for highly indebted companies—and would restore demand for the US dollar.

Mr. Trump could still pick another candidate, given his penchant for surprises. Each finalist has distinct views on monetary policy, and the ultimate choice will have important market implications. It is worth noting that Mr. Trump spent much of last year criticizing Jerome Powell for acting too slowly to cut rates, so it would be surprising if he named someone who would follow Mr. Powell's more conservative path. Still, Mr. Trump's decisions have often defied logic. In recent months Warsh has moved closer to the president's camp, publicly supporting rate cuts—an apparent departure from his earlier reputation as a hawk on inflation.

Warsh served on the Fed's Board of Governors from 2006 to 2011 and advised Mr. Trump on economic policy. If nominated and confirmed, he would replace Jerome Powell when the chair's term expires in May. The appointment would mark a return for the 55?year?old Warsh, who was passed over for the top job in 2017 when Mr. Trump chose Powell. The nominee will face a contested confirmation process in the US Senate, although Warsh is likely to appeal to many Republican senators.

A technical outlook for EUR/USD suggests that buyers should consider reclaiming the 1.1950 level. That would open the way to test 1.1980. From there, a move to 1.2030 is possible, although advancing beyond that without support from major players would be difficult. The extended target is 1.2080. On a decline, I expect meaningful buying interest around 1.1890. If buyers do not appear there, it would be prudent to wait for a new low at 1.1850 or to open long positions from 1.1810.

As for the pound/dollar pair, buyers of the pound sterling need to capture the nearest resistance at 1.3780. Only that will allow them to target 1.3840, above which a breakout would be challenging. The extended target is around 1.3899. If the pair falls, bears will try to seize control at 1.3730. If they succeed, a break of that range would deal a serious blow to bullish positions and could push GBP/USD down to 1.3685 with scope to extend to 1.3630.