The year wasn't even a day old and already the currency markets were hit with a new geo-political crisis as Russian gas giant Gazprom temporarily cut off supplies to Ukraine in a dispute over pricing. As a result, deliveries to Germany as well as other parts of Western Europe which travel through the same pipeline, were severely curtailed prompting EU members to protest vociferously Russia's unilateral actions. Russia quickly relented and the EUR/USD, which had been pressured by the news  rebounded to 1.1900 level.

Although for now the crisis appears to have been averted, the whole incident left a sour taste in the market's  mouth as FX traders now have to seriously consider the possibility of Russia using its energy assets for political rather than economic purposes. At the very least Russia which is due to assume the leadership of the G-8 has shown that it will easily abrogate its contractual obligations when the need suits it, a dynamic that's sure to weigh heavy on euro bulls minds as the region  effectively finds itself hostage to a partner that supplies upwards of 30% of Germany's natural gas needs.

On the economic front the euro was boosted by a massive reduction in German unemployment which declined by 110K vs. expectations of a drop of only -7.5K and steady strength of the PMI data which registered its sixth consecutive reading above 50, printing at 53.6. After a quiet holiday week, the global calendar is busy with FOMC minutes and Friday's NFP reports likely to add further to volatility.

Boris Schlossberg is a Senior Currency Strategist at FXCM.