Insights 
VT 
The Euro slightly decreased against the Swiss Franc, with EUR/CHF trading around 0.9333 after reacting to mixed Eurozone inflation data. Preliminary figures showed Eurozone inflation at 2.2% YoY, slightly above the 2.1% consensus, while core inflation was 2.4% YoY.
On a monthly basis, core inflation decreased by 0.5% in November, contrasting with October’s 0.3% rise. Headline inflation dropped 0.3% in November, reversing October’s 0.2% increase. The European Central Bank is expected to keep interest rates steady as inflation hovers above its 2% target.
Switzerland’s Inflation Data
Attention turns to Switzerland’s inflation data. Economists anticipate a 0.1% monthly drop in November, with annual inflation at 0.1%. This release will inform expectations for the Swiss National Bank’s policy meeting on December 11, where rates are likely to remain at 0%.
The SNB has previously intervened in the forex market to manage the Swiss Franc’s strength, impacting the competitiveness of its export sector. The SNB aims for price stability, defined as a rise of less than 2% in the Swiss Consumer Price Index annually. The SNB’s monetary policy decisions are made quarterly.
The EUR/CHF is trading quietly around 0.9333 after the latest Eurozone inflation numbers showed little change. With inflation steady at 2.2%, we see almost no chance the European Central Bank will adjust rates at its December 18th meeting. This reinforces our view of a stable, range-bound market for now.
Further supporting this, the German IFO Business Climate index for November came in at 86.5, a figure that points to a sluggish economy and gives the ECB no reason to tighten policy. For derivative traders, this lack of a strong catalyst has pushed one-month implied volatility on EUR/CHF down to just 3.8%. These low levels suggest that selling options premium could be a viable strategy.
Swiss National Bank’s Potential Actions
Our attention now shifts to Swiss inflation data due tomorrow, which is expected to show an annual rate of only 0.1%. This figure, combined with the recent Swiss Manufacturing PMI of 48.2, suggests the Swiss National Bank will also hold its rate at 0% on December 11th. The SNB seems content with the current economic picture.
With both central banks likely on hold through their December meetings, strategies that profit from low volatility and time decay are looking attractive. Selling out-of-the-money puts and calls, such as in a short strangle, could capture premium as long as the pair remains within a defined range. Key risk dates for this position would be the SNB decision on the 11th and the ECB on the 18th.
We must remember the SNB’s history of sudden policy shifts, like the removal of the euro peg back in 2015, which reminds us that surprises are always possible. Given how low volatility is, buying cheap, far out-of-the-money options could serve as a low-cost hedge. This protects against any unexpected geopolitical event that could drive a flight to the safety of the Swiss Franc.
