Inflation Metrics Analysis

Eurozone inflation remained steady. In December, the Harmonized Index of Consumer Prices (HICP) rose by 2.0% compared to last year, matching market expectations. Monthly inflation edged up by 0.2%, reversing the 0.3% dip seen in November. Core inflation, which excludes food and energy costs, softened slightly. Core HICP climbed 2.3% year-on-year, just below the 2.4% forecast. Monthly, core inflation increased by 0.3%, bouncing back from a 0.5% drop in November. This data suggests a small cooling in annual inflation, but the monthly increases point to an inconsistent trend of decreasing inflation. With inflation at the ECB’s target of 2%, interest rates are likely to stay the same following slightly weaker PMI figures. All eyes are now on Swiss inflation data, set to be released on Thursday. The forecast predicts a 0.1% year-on-year increase, but the month-on-month Consumer Price Index (CPI) is expected to decline by 0.1%, following a previous 0.2% drop. A lower-than-expected result could raise worries about low inflation and possibly negative rates.

Market Reactions and Opportunities

The EUR/CHF exchange rate is currently around 0.9300, indicating a stable market. Eurozone inflation data for late 2025 hit the European Central Bank’s 2% target, reinforcing our belief that the ECB will keep interest rates steady for now. With this stability in the euro, all attention is now on Switzerland. The immediate opportunity arises from the Swiss inflation figures to be released tomorrow, January 8th. Implied one-week volatility for EUR/CHF has increased to 5.5%, surpassing the three-month average of 4.2% from late 2025. This indicates that traders may want to buy options to capitalize on the expected price movement after the data is published. If the Swiss Consumer Price Index falls into deflation and misses the 0.1% forecast, it could pressure the Swiss National Bank. We might see the pair quickly move towards the 0.9400 resistance level. In this case, buying weekly call options with a strike price around 0.9350 provides a defined-risk way to profit from a potential rally. Conversely, if inflation is stronger than expected, it would enhance the strength of the franc and push EUR/CHF lower. Given that Germany’s inflation cooled to just 1.8% in December 2025, any signs of rising prices in Switzerland would highlight a significant policy difference. In this scenario, put options would be the preferred choice to bet on a drop towards the 0.9250 support level. We should keep in mind the Swiss National Bank’s long struggle against deflation, which included the negative interest rate policy that ended in 2022. While officials claim the threshold for reintroducing negative rates is high, an unexpectedly low inflation figure could quickly shift their stance. Therefore, any derivative positions taken before the announcement should be managed with clear risk limits. Create your live VT Markets account and start trading now.

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