Germany’s preliminary Consumer Price Index (CPI) for July went up by 2.0% compared to last year. This matches the previous rate and is slightly higher than the expected 1.9%. On a month-to-month basis, the CPI increased by 0.3%, which is better than the anticipated 0.2%, following a previous rate of 0.0%. The Harmonised Index of Consumer Prices (HICP) rose by 1.8% year-on-year, just below the forecast of 1.9%, and down from 2.0% in the previous month. Month-on-month, the HICP increased by 0.4%, meeting expectations and improving from June’s 0.1% increase.

Core Inflation Stability and ECB Stance

The core annual inflation rate held steady at 2.7% for July. This stability suggests that the European Central Bank (ECB) will likely maintain its current policies during the summer, with no changes expected in September. Germany’s mixed inflation data supports our belief that the ECB will stay put. The core inflation rate, steady at 2.7%, shows that price pressures aren’t rising quickly, allowing policymakers to hold off on changes. In the coming weeks, this may lead to lower volatility in interest-rate-sensitive assets. Evidence of this is seen in the V2X index, which tracks volatility in the Euro Stoxx 50, recently dropping to its lowest point since February 2025. This environment suggests that selling options on indices like the German DAX could be a smart move.

ECB Hesitation and Trading Strategies

The ECB’s caution makes sense, given the wider economic context. Recent data shows that Eurozone GDP growth slowed to just 0.2% in the second quarter of 2025. Additionally, Germany’s manufacturing PMI has stayed in contraction territory for the past three months, indicating a weak industrial sector. We faced a similar situation in late 2023 and early 2024 when the ECB paused its rate hikes. During that time, range-bound trading strategies on currency pairs like EUR/USD proved profitable. We expect a similar calm market for the euro through August. Derivative traders should explore strategies that benefit from this stability. This could involve selling short-dated strangles on major European equity indices to take advantage of the anticipated lack of major market movements. Currency traders might consider setting up iron condors on EUR/USD to profit from the pair staying within a consistent range. Key points to watch include the upcoming flash Eurozone HICP release and any statements from ECB officials. Unexpected hawkish comments could disrupt these low-volatility positions. For now, though, it seems we are in for a calm summer market. Create your live VT Markets account and start trading now.

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