EUR/USD aims for 1.0550 despite upbeat US NFP data, Eurozone Retail Sales eyed

The EUR/USD pair is hovering around a fresh five-month high at 1.0545 in the early Asian session. The major currency pair is expected to extend its rally to near 1.0550 amid an upbeat market mood. Expectations of a decline in interest rate hike extent ahead by the Federal Reserve (Fed) have underpinned the risk appetite theme for extended periods.

The US Dollar Index (DXY) is expected to test the previous week’s low around 104.40 as the recovery move banked on stronger-than-projected United States Nonfarm Payrolls (NFP) data faded after failing to extend the rebound move above 105.60. S&P500 ended on a subdued note on Friday as upbeat labor additions acted as a double-edged sword for the market.

The 10-year US Treasury yields continued their downside journey and dropped below 3.50% as the Fed is highly expected to decelerate its rate hike pace.

The US NFP data rose to 263K, significantly higher than the projections of 200K. Demand for labor remained extremely solid in November despite accelerating interest rates by the Fed. This implies robust retail demand by the households, which could be a barrier to the declining inflation desire. Apart from that, Average Hourly Earnings rose to 5.1%, respecting solid labor demand and supporting inflation as households will have more money at their disposal.

On the Eurozone front, investors are awaiting the release of the Retail Sales data, which will release on Monday. The economic data is expected to improve dramatically by 2.7% against a contraction of 0.6% on an annual basis. A solid retail demand will strengthen inflation expectations ahead as it does not give factory owners any incentive to offer lower prices for products and services.