Dollar softened modestly in early US trading after the release of mixed December labor market data. The headline payroll gain undershot expectations, but the miss did little to challenge the broader narrative of a labor market that is slowing gradually rather than deteriorating abruptly.
More importantly, for monetary policy, the fall in the unemployment rate alongside still-solid wage growth points to lingering tightness beneath the surface. Labor demand may be cooling, but conditions remain firm enough to prevent a decisive shift in policy expectations.
As such, the report offered little that is materially decisive for the Fed’s easing plans. It neither strengthens the case for aggressive cuts nor signals an urgent need to respond to labor market weakness.
Dollar’s mild pullback appears more like a positioning adjustment than a change in conviction. Some traders had built long USD exposure ahead of the release, anticipating an upside surprise that ultimately failed to materialize.
With that risk removed, it is clear that US 10-year yield lacks the momentum needed to break decisively above 4.2% resistance zone, a development that could cap any renewed Dollar rally attempt. Meanwhile, US equity futures firmed as payrolls uncertainty passed. While there is no strong upside momentum in stocks yet, the clearance of event risk is offering some near-term relief, with DOW likely to have a serious test of the 50,000 level later in the month.
On weekly FX performance, Dollar still leads overall, followed by Aussie and Sterling. Loonie remains the weakest, with Swiss Franc and Euro also underperforming. Yen and Kiwi trade in the middle of the pack.
US NFP misses by rising 50k in December, but unemployment rate falls to 4.4%
US non-farm payrolls rose by 50k in December, undershooting expectations of 66k. Downward revisions to prior months added to the softer tone, with October employment revised lower by -68k to -173k, and November trimmed by -8k to 56k.
However, the unemployment rate fell unexpectedly from 4.6% to 4.4%, beating expectations and suggesting labor market conditions remain tight despite slower job growth. Average hourly earnings rose 0.3% mom, in line with forecasts, keeping annual wage growth elevated at 3.8% .
Payroll growth in 2025 totaled just 584k, sharply lower than the 2.0 million increase in 2024.
Canada jobs beat with 8.2k growth, masks rising unemployment
Canada’s labor market delivered a modest upside surprise in December, with employment rising 8.2k, defying expectations for -5k decline. The gain, however, marked a sharp slowdown after three strong months that added a combined 181k jobs through November, signaling that momentum is cooling into year-end.
Beneath the headline, job composition was mixed. Full-time employment surged by 50k, while part-time jobs fell by -42k, pointing to improving job quality even as overall growth slowed.
At the same time, the unemployment rate jumped to 6.8% from 6.5%, above forecasts, reflecting a notable increase in labor supply. Indeed, the participation rate rose 0.3ppt to 65.4%, while the employment rate held steady at 60.9%, suggesting new entrants are outpacing hiring.
Wage growth eased slightly to 3.4% yoy, down from 3.6% in November.
Eurozone retail sales rise 0.2% mom in November, as non-food demand improves
Eurozone retail sales volumes rose 0.2% mom in November, slightly above expectations of 0.1% increase. The improvement was driven primarily by non-food products, where sales increased 0.4% mom, offsetting weakness elsewhere. Sales of food, drinks and tobacco slipped -0.2%, while automotive fuel volumes fell -0.1%.
Across the broader EU, retail sales also rose 0.2% mom, but national divergences were stark. Luxembourg posted a sharp 5.8% surge, followed by Portugal (2.2%) and Denmark (1.9%). Croatia (-2.2%), Belgium (-1.6%) and Slovakia (-1.5%) recorded notable declines.
China CPI surprises to upside at 0.8%, but full-year picture weak
China’s consumer inflation accelerated in December, with CPI rising from 0.7% to 0.8% yoy, above expectations of 0.6% and marking a 34-month high. The increase was driven mainly by food prices, as fresh vegetables surged 18.2% and beef prices rose 6.9%, supported by pre-New Year holiday demand.
However, price pressures remained uneven. Pork prices continued to fall sharply, down -14.6% yoy, while prices of gold jewelry jumped 68.5%, reflecting strong investment and gifting demand rather than broad-based consumption. According to National Bureau of Statistics, holiday shopping and supportive policies helped lift prices, but the improvement remains selective.
Looking beyond December, the broader deflationary challenge persists. Full-year CPI growth in 2025 was flat, the weakest in 16 years and well below policymakers’ “around 2%” target.
At the producer level, deflation moderated only slightly. PPI improved to -1.9% yoy in December from -2.2%, aided by rising non-ferrous metal prices and capacity discipline in key industries. Still, PPI fell 2.6% for the full year.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.1642; (P) 1.1663; (R1) 1.1682; More….
EUR/USD recovers mildly after NFP but overall outlook is unchanged. Intraday bias stays on the downside for the moment. Prior break of 55 D EMA (now at 1.1671) suggests that rebound from 1.1467 has already completed. Overall development indicates that corrective pattern from 1.1917 is already in the third leg. Further decline should be seen to 1.1467 support, and below. On the upside, though, break of 1.1742 will turn bias back to the upside for 1.1807 resistance instead.
In the bigger picture, as long as 55 W EMA (now at 1.1408) holds, up trend from 0.9534 (2022 low) is still in favor to continue. Decisive break of 1.2 key psychological level will carry larger bullish implication. However, sustained trading below 55 W EMA will argue that rise from 0.9534 has completed as a three wave corrective bounce, and keep long term outlook bearish.
