The financial markets of 2026 did not follow the script from the very beginning. The start of the year should have been a calm window for traders to plan their asset allocation for the new year, but reality caught everyone off guard. The market generally expected this year's themes to be the start of the Federal Reserve's interest rate cut cycle and the continued penetration of artificial intelligence into industries. However, with a series of unexpected geopolitical events, these mild macroeconomic narratives were quickly marginalized.



Most notably, the dramatic turn of events in Venezuela—the extradition of President Maduro to the United States to face charges—shocked the international community. Even more surprising was the prospect of large-scale investment by US companies in Venezuela's aging oil infrastructure. This not only signifies the potential reintegration of a long-blockaded energy power into the global supply chain but also marks a clear escalation of US strategic intentions in Latin America. Analysts point out that this is not an isolated action but rather part of the Trump administration's global strategic plan.

Following this, the US focus quickly shifted to Colombia, Cuba, and even as far as Greenland. The Greenland issue, in particular, has triggered unprecedented diplomatic tensions due to its involvement in the acquisition of territory from ally Denmark. US Secretary of State Rubio is about to visit Denmark, carrying Trump's formal proposal regarding Greenland. Reports indicate that the president has not ruled out the possibility of using military means to achieve his goal, a hardline stance that has cast a shadow over US-EU relations. All indications suggest that the geopolitical risks of 2026 may far exceed the tariff disputes and market turmoil experienced in 2025.

With the tariff ruling still pending, the fate of the dollar hangs in the balance with a Supreme Court decision.

If geopolitics is an undercurrent, then the upcoming ruling by the U.S. Supreme Court on the legality of tariffs is a ticking time bomb. The market widely expects the ruling to be released after 11:00 PM on January 9th, focusing on whether the president has the authority to impose tariffs under a 1977 law without congressional approval.
If the ruling supports the president's authority, Trump may immediately restart large-scale tariff actions, even using additional tariffs as leverage to pressure the EU into making concessions on issues such as Greenland. While this "economic coercion" strategy is controversial, it is not impossible in the current political climate. Conversely, if the court rules the existing tariffs illegal, although the White House is prepared to reimplement similar measures under other legal provisions, this process could still lead to a policy vacuum and market chaos, potentially triggering sharp fluctuations in asset prices.

Regardless of the outcome, gold is seen as one of the biggest beneficiaries. Especially if tariffs are deemed illegal, market concerns about policy uncertainty will rise sharply, driving funds into safe-haven assets. Meanwhile, the dollar's performance is more complex. Although the dollar strengthened against the euro and pound at the start of the new year, partly due to the special safe-haven sentiment triggered by the Venezuelan crisis, if trade frictions escalate across the board, traders will often choose to sell the dollar and embrace alternative safe-haven assets such as the euro and Swiss franc.

A deeper issue is that once the Supreme Court limits presidential power, the predictability of future US diplomatic, military, and even economic decisions will decrease. This means that markets will not only face immediate policy shocks but also adapt to a more uncertain governance environment. For non-US currencies, this presents both risks and opportunities. For example, the Japanese yen has shown some resilience against the backdrop of a strong dollar, supported by the Bank of Japan's hawkish stance. Currently, the market expects a possible rate hike in September, but the outcome of the spring wage negotiations will be a key indicator. Before that, the Japanese authorities are likely to continue verbal intervention to prevent the USD/JPY exchange rate from breaking the psychological barrier of 160.

Inflation data released, monetary policy direction remains a mystery.

While the outside world focuses on geopolitics and tariffs, traditional macroeconomic data continues to quietly influence market sentiment. Next week will see a busy schedule of economic releases, with the most anticipated being Tuesday's release of the December Consumer Price Index (CPI). This is the first inflation report that may not have been affected by the US government shutdown, making it a highly valuable indicator.

The market currently expects a rate cut of approximately 60 basis points in 2026, higher than the 25 basis point cut implied by the Fed's dot plot last December. If the current CPI data shows continued easing of price pressures, it will contrast with previous assessments by Fed officials that "inflation will remain high," thus providing room for the new chairman to initiate rate cuts earlier. It is worth noting that Trump has yet to announce Powell's successor, and this personnel uncertainty adds further uncertainty to monetary policy.

Wednesday will also see the release of November retail sales and the Producer Price Index (PPI), with the former considered a key indicator of consumer momentum. Strong data could push up the Atlanta Fed's GDPNow model's current 2.7% growth forecast, temporarily supporting the dollar's performance. However, given the dovish majority among the Fed's voting members this year, pronouncements from hawkish members, including Cleveland Fed's Hammark and Dallas Fed's Logan, will be closely watched. With only 20 days until the next meeting, officials need to clearly articulate their positions before the blackout period, and the market is closely monitoring any subtle shifts in tone.

In Europe, the euro remains weak, hampered not only by a lack of new positive factors but also by the potential deterioration of relations between the US and Europe. Rubio's visit to Denmark could exacerbate this risk, further weakening the euro's appeal. Although the European Central Bank is currently maintaining its policy unchanged, a shift to easing cannot be ruled out if trade frictions lead to a significant economic downturn. Overall, while traditional macroeconomic factors are currently secondary in the context of geopolitical risks, they will quickly return to the forefront and determine the market's direction in the next phase once the situation eases.