The Euro has slightly fallen against the Swiss Franc, with EUR/CHF trading around 0.9333 after reacting to mixed inflation data from the Eurozone. Early figures indicated Eurozone inflation at 2.2% year-over-year, which is slightly above the 2.1% expected. Meanwhile, core inflation stood at 2.4% year-over-year. On a monthly basis, core inflation dropped by 0.5% in November, contrasting with a 0.3% rise in October. Headline inflation also fell by 0.3% in November, reversing the 0.2% increase from October. The European Central Bank is likely to keep interest rates unchanged as inflation stays above its 2% target.

Switzerland’s Inflation Data

Next, attention shifts to Switzerland’s inflation data. Economists predict a 0.1% monthly decrease in November, with annual inflation expected at 0.1%. This release will shape expectations for the Swiss National Bank’s policy meeting on December 11, where rates are anticipated to remain at 0%. The SNB has intervened in the forex market in the past to control the Swiss Franc’s strength, which affects its export sector’s competitiveness. The SNB aims for price stability, defined as an annual rise of less than 2% in the Swiss Consumer Price Index. The SNB’s monetary policy decisions are made quarterly. The EUR/CHF is trading steadily around 0.9333 after the latest Eurozone inflation data showed little change. With inflation steady at 2.2%, it’s unlikely that the European Central Bank will adjust rates at its December 18 meeting. This supports our view of a stable market for now. Additionally, the German IFO Business Climate index for November came in at 86.5, indicating a sluggish economy and giving the ECB little reason to change its policy. For those trading derivatives, the lack of strong catalysts has driven one-month implied volatility on EUR/CHF down to just 3.8%. These low levels make selling options premium a potential strategy.

Swiss National Bank’s Potential Actions

We are now focusing on the Swiss inflation data expected tomorrow, which should show an annual rate of only 0.1%. This number, along with the recent Swiss Manufacturing PMI of 48.2, suggests that the Swiss National Bank will likely keep its rate at 0% on December 11. The SNB appears comfortable with the current economic situation. With both central banks expected to hold steady through their December meetings, strategies that benefit from low volatility and time decay look appealing. Selling out-of-the-money puts and calls, like in a short strangle, could capture premium as long as the pair remains within a set range. Key risk dates for this strategy include the SNB decision on the 11th and the ECB meeting on the 18th. We should remember the SNB’s history of sudden policy changes, such as removing the euro peg in 2015, which shows that surprises can happen. Given the current low volatility, buying cheap, far out-of-the-money options could serve as an affordable hedge against unexpected geopolitical events that might lead to a rush to the safety of the Swiss Franc. Create your live VT Markets account and start trading now.

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