The markets are most worried about the continued troubles in Ukraine

The biggest risk in the currency markets at the moment is the deteriorating situation in the Ukraine, and Russia’s involvement in the conflict. The cease fire agreed to last week is holding, but only tentatively.

What people are most worried about is the impact the conflict will have on the weak economies of Europe. There are faint signs of a recovery in the Eurozone countries and the EU as a whole, but a collapse of the cease fire could upend any positive development.

The countries in most danger of Russian aggression are the Baltic states, especially Poland, Latvia, Estonia and Lithuania. In addition, Finland and Sweden could also be drawn into the conflict. Estonia’s government has published booklets telling it citizens what to do in case of Russian tanks rumbling across its borders. In other words, tensions are rising.

No one has a clue as to what Vladimir Putin really wants. Making the Crimea part of Russia is only a small part of his ambition. Taking a big swath of the Ukraine is certainly part of his plan.

Meanwhile, the euro keeps on softening against the US dollar with expectations of the currency pair reaching parity growing by the day. A key question is whether the weakening of the euro is due to geopolitical factors or whether it is the result of the ECB’s quantitative easing program. More than likely it is a combination of both.