Inflation Metrics Analysis
Eurozone inflation metrics were steady, with the Harmonized Index of Consumer Prices (HICP) increasing by 2.0% year-on-year in December, the same as market predictions. Monthly headline inflation went up by 0.2%, reversing the 0.3% drop seen in November.
Core inflation, excluding food and energy, softened marginally. Core HICP increased by 2.3% year-on-year, slightly below the 2.4% prediction. On a monthly basis, core inflation rose by 0.3%, reversing a 0.5% fall from November.
The data indicates a tentative cooling in annual inflation, but monthly increases suggest an uneven disinflation trend. With inflation at the ECB’s 2% target, the current interest rate stance is likely to be maintained after slightly weaker PMI figures.
Attention is now on Swiss inflation data due on Thursday. The forecast suggests a 0.1% year-on-year increase, while the month-on-month CPI is expected to dip by 0.1%, following a previous 0.2% drop. A lower-than-expected result might raise concerns about low inflation and potential negative rates.
Market Reactions and Opportunities
With the EUR/CHF exchange rate holding near 0.9300, the market is in a holding pattern. Eurozone inflation data from the end of 2025 came in right at the European Central Bank’s 2% target, which solidifies our view that the ECB will keep interest rates steady for the foreseeable future. This stability on the euro side means all eyes are now on Switzerland for the next move.
The most immediate opportunity relates to the Swiss inflation figures due tomorrow, January 8th. Implied one-week volatility for EUR/CHF has ticked up to 5.5%, which is noticeably higher than the three-month average of 4.2% we saw in late 2025. This suggests traders could consider buying options to trade the potential price swing following the data release, as the market is clearly expecting a reaction.
If the Swiss Consumer Price Index shows a fall back into deflation, missing the 0.1% consensus, it would pressure the Swiss National Bank. We could see the pair move quickly towards the 0.9400 resistance level. In this scenario, buying weekly call options with a strike price around 0.9350 offers a defined-risk way to capture a potential rally.
On the other hand, a stronger-than-expected inflation print would reinforce the franc’s strength and push EUR/CHF lower. After Germany’s inflation cooled to just 1.8% in December 2025, any sign of price pressure in Switzerland would create a stark policy contrast. Put options would be the instrument of choice to target a move back towards the 0.9250 support level.
We must remember the Swiss National Bank’s long fight against deflation, which included the negative interest rate policy that ended back in 2022. While policymakers state the bar for a return to negative rates is high, a shockingly low inflation number could quickly change their tone. For this reason, any derivative positions taken ahead of the announcement should be managed with clear risk limits.
