Both are grammatically correct and generally appropriate. Personally, I only say 'Merry Christmas' if I'm sure the person I'm talking to is Christian, otherwise, it might be kind of awkward. ' Happy Holidays' is more general because supposedly it encompasses Christmas, Chanukah, and Kwanzaa. So it's safer if you're not sure of the person's religion. I'm not Christian myself, so I rarely say 'Merry Christmas' to anyone, except my Christian grandmother. However, if someone says 'Merry Christmas' to me, I'm not at all offended, I just wish them a Merry Christmas too and leave it at that.