FXStreet (Delhi) – Alan Ruskin, Macro strategist at Deutsche Bank, suggests that ironically, Mario Draghi’s biggest problem is his own credibility. It is Draghi’s past ability to leapfrog expectations that has itself elevated expectations to extreme heights. Key Quotes • “Given so many instruments, it is the broader impressions from the press conference that will ultimately decide whether the ECB has managed to match or exceed elevated expectations. • The market needs to come away with the impression that Draghi has the tools to do ‘whatever it takes’ to lift inflation back to target - a full embrace of ‘QE whatever it takes’. • Fears of getting carried away with Draghi’s credibility, coupled with large scale short EUR pre-positioning explains why the FX market is concerned about an upside squeeze in EUR/USD. 25 delta risk reversals for the day on EUR/USD, have been bid for top side to the tune of 4 to 5 vols. • The one day vols have been consistent with a daily EUR/USD range of ~290 pips, leaving the current downside straddle breakeven very close to the cycle low at 1.0460 which looks very well protected for now, not least because the unpredictable US payrolls number comes up so quickly on the heels of the ECB. • The US labor market data will answer three big questions: Has the divergence between manufacturing and the service sector continued in November? Is the US data weak enough to run with the idea of ‘a dovish rate hike’? Or, is the market going to have to converge further to the FOMC dots and add to Fed credibility? • Even a 150K number in November leaves the 3m NFP average at 186K which is still a very robust labor market. The probability of a March Fed rate hike at ~50% looks too low and incompatible with a market expecting a 200K payroll number.” For more information, read our latest forex news.