Geopolitical High Stakes and Tariff Verdicts: Markets Brace for Volatility

Global markets are navigating a complex minefield of geopolitical escalation and legal uncertainty this week, as the US administration aggressively expands its foreign policy footprint while facing a pivotal Supreme Court decision on trade powers home.

The Geopolitical “Power Play”

The risk premium in global markets is being repriced following the Trump administration's bold moves on two fronts. First, the US Energy Department has declared \“indefinite control\” over Venezuelan oil sales. Energy Minister Chris Wright confirmed that revenue from Venezuelan crude would be held in US-controlled accounts, effectively seizing the financial output of the Latin American nation's energy sector.

Simultaneously, the administration has revived discussions regarding the purchase of Greenland, sparking diplomatic friction with European allies. These aggressive maneuvers have drawn sharp rebukes from Congress, with a bipartisan Senate group threatening to invoke the War Powers Resolution to limit unilateral military or territorial actions. For Forex traders, this heightens the allure of safe havens, keeping a floor under Gold prices despite technical headwinds.

Supreme Court to Rule on Tariff Powers

Beyond geopolitics, the most immediate risk event is Friday's Supreme Court ruling on the \“IEEPA Tariff Case.\” The court will decide if the President exceeded his authority under the International Emergency Economic Powers Act to impose sweeping tariffs.

Morgan Stanley warns that the ruling may result in a \“gray outcome\”—neither stripping the President of power nor granting carte blanche. A verdict limiting tariff powers could soften the USD by reducing trade war inflation premiums, while a ruling upholding them could reignite dollar strength. Betting markets currently imply a 75% probability that the specific tariffs in question may be struck down or limited, suggesting asymmetric downside risk for the Greenback if the court surprises with a hawkish stance on executive power.

Macro Data: The Service Sector Resilience

Amidst the political noise, US economic data remains stubbornly mixed. The ISM non-manufacturing PMI defied expectations, jumping to 54.4 in December (vs. forecast 52.3), driven by a surge in new orders. This suggests the US consumer remains resilient, potentially keeping the Federal Reserve cautious about rate cuts. However, JOLTS job openings data signaled cooling, dropping to a one-year low.

Traders are now squarely focused on Fridays Non-Farm Payrolls (NFP), with expectations set for a modest 65k job addition and unemployment ticking down to 4.5%. A strong print, combined with the hot services PMI, could force a repricing of Fed easing bets for 2026.