[ForexNews]

The lessons of the weekend –as the rhetoric over nuclear programs increases, so does the missile testing? The response of Iran to world threats of more sanctions may not inspire many to think diplomacy has a chance. That is a risk off event, but the mood of the market switched overnight as two events stand out. First the G20 boldly replaces the G8 and gives the IMF currency oversight. Whether the IMF has teeth seems a big deal. The Japanese FinMin Fujii got the message and suggested intervention wasn’t likely so the market pushed the JPY to 9 month highs, only to find buyers of USD near the lows. Recanting of any statements from Fujii seems a bit lame, and out of step with the new world of letting currency value be determined by the economists of the IMF. The second event was that Germany managed to keep its Chancellor which may seem easy given the polls but shouldn’t be discounted given the other votes from Europe ahead and given the real history of voters during recessions. The implication for Lisbon treaty vote in Ireland on Friday and the Greek election over the weekend is supportive for calm and helps risk return. As the US markets open to a big month-end week with all the usual flows and noise of jobs and ISM reports we see the return of Merger Monday Mania. The consolidation of the US economy seems to be the key driver for equities today. M/A returning to the tape is a signal to authorities that liquidity is plentiful enough for the usual gears of the economic cycle to kick in. For the fate of the USD it may be that we are nearer the end than the beginning of the “great correction” so called by bears to prevent anyone from believing in the recovery. The market still believes the USD and FX lead other markets – dog still driven by his tail – so watch for another push of USD strength just to test the positions but without a new world its hard to get too excited today.