Germany’s annual inflation rate, measured by the Consumer Price Index (CPI), fell to 1.8% in December, down from 2.3% in November, according to Destatis. The monthly CPI remained unchanged, missing the expected 0.2% increase. The Harmonized Index of Consumer Prices (HICP), which the European Central Bank (ECB) prefers, rose by 2% year-over-year. This increase follows a 2.6% jump in November but is below the expected 2.2%. As a result, the EUR/USD pair dropped by 0.2%, reaching 1.1700.

Germany’s HICP Data is Coming

We are waiting for December’s preliminary HICP data for Germany. It is expected to show a 2.2% annual increase, with a possible monthly rise of 0.4%, reversing the previous 0.5% drop. Early reports from individual states indicate moderate year-over-year CPI growth with quicker monthly inflation. Additional state reports, along with Eurozone’s HICP data, are expected soon. EUR/USD is trading slightly lower at 1.1717 ahead of the HICP release. Technical indicators suggest it may decline further, with potential resistance above recent highs that could change current trends. Inflation measures how much the prices of goods and services increase, reported monthly and annually. It affects currency value since central banks might change interest rates in response, impacting economic indicators like currency strength and the appeal of gold investments.

Important Signal for ECB

The recent report showing German inflation at 1.8% is significant. This figure is below the ECB’s 2% target, reducing the urgency for the ECB to adopt a more aggressive monetary policy soon. As a result, the likelihood of higher interest rates in the Eurozone is decreasing for the next few weeks. This data supports the bearish trend of the EUR/USD, which struggles to maintain the 1.1700 level. The technical analysis indicates a Double Top formation from late 2025, suggesting a downward trend. The most likely path appears to be toward the December 2025 lows around 1.1600. Recent Eurozone inflation figures from last week confirm this trend, showing a decrease to 2.2% for the region, down from 2.8% in November 2025. Additionally, the strong US jobs report from last Friday, which revealed over 210,000 jobs added in December, indicates the Federal Reserve is unlikely to adjust its policies. This growing difference in policies between a cautious ECB and a steady Fed favors a stronger dollar against the euro. Given this situation, we might consider buying put options on the EUR/USD. Targeting strike prices below 1.1650 for expiry in the next four to six weeks aligns well with current downward momentum. This strategy offers a defined-risk approach to benefit from further euro weakness. The euro’s weakness extends beyond the dollar; it is also lagging against the Australian Dollar. The Reserve Bank of Australia’s relatively hawkish stance, supported by strong commodity exports, makes planning for declines in the EUR/AUD pair another good opportunity. We should view this cross as a way to express a bearish stance on the euro. It’s important to recall the pattern from 2022 when aggressive rate hikes by the Fed outpaced those by the ECB, pushing the EUR/USD below parity for the first time in twenty years. While we do not expect such a drastic movement now, history shows that differences in policy can lead to significant currency trends. Therefore, we should use defined-risk option strategies to guard against any unexpected hawkish changes from European policymakers. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now