The Euro has seen a slight recovery against the Swiss Franc, trading around 0.9320 after touching lows of 0.9300. This rebound follows the release of the European Central Bank’s meeting accounts, which confirmed a steady interest rate approach.

ECB Policy Approach And Challenges

ECB policymakers remain confident in their current stance to guide inflation towards its target, despite continued sticky service prices and high wage growth. Discussions emphasised maintaining restrictive rates for longer to stabilise inflation expectations amidst fiscal uncertainties in larger Eurozone economies.

Some ECB members warned against premature policy shifts, fearing potential financial instability. In contrast, political uncertainty in France, stemming from challenges faced by President Macron in appointing a new prime minister, adds pressure on regional sentiment.

In Switzerland, inflation expectations have lowered the chances of the Swiss National Bank adopting negative rates again. Despite the September CPI rising 0.2% year-on-year, it was below the forecasted 0.3%. On a monthly basis, prices fell by 0.2%, compared to a 0.1% decline in August. The Euro showed mixed performance against major currencies, being strongest against the British Pound.

Given the European Central Bank’s firm stance on holding interest rates, we believe the downside for the Euro is currently limited. The latest September inflation figures for the Eurozone, which we saw at 2.4%, are still above the 2% target, justifying the ECB’s decision to remain restrictive. This makes buying aggressive put options on the Euro less appealing in the immediate future.

Conflicting Pressures And Market Volatility

On the other hand, the Swiss National Bank is also showing little appetite for easing its policy, which should continue to support the Swiss Franc. While the September inflation figure of 0.2% year-over-year was slightly below forecasts, it marks the fourth straight month of positive inflation, a trend we’ve been watching since June 2025. This fundamental support for both currencies could keep the EUR/CHF pair trading within a relatively tight range.

The biggest wildcard for the Euro is the political situation in France, which is creating uncertainty around the country’s fiscal health. We have seen the risk premium on French debt rise, with the spread between French and German 10-year government bonds widening to 65 basis points over the last week. A prolonged delay in resolving the government’s leadership could trigger a sharp sell-off in the Euro, independent of central bank policy.

This environment of conflicting pressures suggests that volatility may increase in the coming weeks. This setup reminds us of the conditions in late 2024 when mixed signals from central banks and political headlines caused implied volatility to spike. Therefore, derivative strategies that profit from a large price move, such as a long straddle, could be considered to capitalize on a potential breakout from the current range.

With the pair currently finding support around the 0.9300 level, there is a tactical opportunity for range-bound strategies. Selling out-of-the-money call options with a strike price near 0.9400 could be a way to collect premium while the market waits for a clearer directional signal. However, any escalation of the political issues in France would be a clear signal to exit such positions.

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