Will the global economy remain global? Are we about to see the global economy fracture into smaller pieces as it was in the past? The latter possibility might sound outlandish at the moment, but it could become a reality at least to a certain extent. The key is to listen to the messages the markets are sending.

Reading Between the Lines

One clear message was recently sent by the Swiss National Bank after it scrapped its three-year currency cap of 1.20 francs per euro. That message: We’re not sure the euro is sustainable, and just in case it’s not, we don’t want to be there when it collapses. (For more, see: The Swiss Franc: What Every Forex Trader Needs to Know.)

If you were really paying attention it’s possible that you could have predicted the European Central Bank (ECB) announcing its own quantitative easing (QE) program after seeing Switzerland scrap its currency cap. In other words, the Swiss were likely informed that this was going to take place and took action ahead of time.

While this move helps protect the currency, it has hurt the Swiss economy. It's also a negative for many households and businesses in Poland and Hungary, which hold debt in Swiss francs. As the value of the currency increases, debt becomes more expensive which in turn curbs growth.

Potential Snowball Effect

Now that the world is involved in currency wars after such a long period of time enjoying currency peace, the next move can come from anywhere. And in some cases, it’s difficult to determine whether a nation and/or central bank will aim to devalue its currency or aim to improve it. (For more, see: What are Central Banks?)

For instance, Bank of Canada recently announced a 0.25% interest rate cut which sent the Canadian dollar swooning 2.3% in one day — its biggest drop in three years.

In Russia, the key interest rate currently holds at 17%, which along with lower oil prices, is expected to be a main contributor toward economic contraction of up to 5% this year. The ruble is already down 20% versus the U.S. dollar for the year. As a result, interest rate cuts are highly unlikely. Russia’s banking sector is now on the verge of trouble. (For more, see: Sanctions & Oil Prices Bring the Russian Economy Near Collapse.)

We also don’t know if Greece will eventually leave the euro. According to German Chancellor Angela Merkel, Greece joining the euro was a mistake and Greece has added to the region’s problems. It will be interesting to see how this mess is cleaned up.

Predictable Situations

There are some much more predictable situations. The Bank of Japan announced accommodative monetary policies in an effort to help grow its economy. These policies include:

• Increased purchases of exchange-traded funds (ETFs) (from 1 trillion yen to 3 trillion yen)

• Increased purchases of real estate investment trusts (REITs) (from 30 billion yen to 90 billion yen)

• Extend current bond holdings to 7-10 years

• Purchasing 80 trillion yen (from 50 trillion yen) until the economy shows 2% inflation

Currently, the Bank of Japan expects 0.5% inflation for the fiscal year ending March 2015, compared to a previous expectation of 1% inflation. It’s likely that current policies will help investors more than the Main Street consumers of Japan, especially since those consumers are being hit with tax hikes. From a currency perspective, the continuous purchasing of 80 trillion yen until the economy produces 2% inflation is a negative for the yen and a positive for the U.S. dollar. (For more, see: Lessons Learned: Comparing the Japanese and U.S. Bubbles.)

Then we have the European Central Bank (ECB) which has been fighting against deflation. Even Germany — the strongest economy in Europe for years — has suffered a 0.5% decline in prices over the past year. The ECB has lowered interest rates and launched its own QE program. This is expected to help fuel economic growth, but just as the case in the U.S. is it sustainable? Either way, this move is going to hurt the euro, which will aid the U.S. dollar. And though not likely, what if Denmark decides to scrap its Danish krone peg to the euro? That would only add to the currency volatility found around the world today. (For more, see: How can quantitative easing be effective in the economy?)

The Bottom Line

The implications of Switzerland scrapping its currency cap on the euro is not only confusing but just how it will continue to play out remains to be seen. This is a volatile investing environment in which extreme caution should be considered by most.

Dan Moskowitz owns shares of Market Vectors Double Short Euro ETN (DRR).