• EUR/USD is looking to conquer 1.0550 as the focus has shifted to Eurozone Retail Sales data.
• The USD Index failed to extend recovery despite solid additions in the labor market.
• A solid Eurozone retail demand is going to strengthen inflation expectations ahead.

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 ahead 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 a longer period.

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, which is going to support inflation as households will have higher 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 is going to strengthen inflation expectations ahead as it is not providing any incentive to factory owners to offer lower prices for products and services.