EUR/USD Forecast: Triangle setup points to bearish outlook, Fed rate hike uncertainty limits downside

The EUR/USD pair had a rather lacklustre trading session on Thursday and remained confined within a broader trading range, largely unaffected by the latest ECB monetary policy update. The European Central Bank left interest rates unchanged, as was widely expected, and confirmed that it would wind down its QE programmed at the end of this month. The central bank maintained its forward guidance and reaffirmed that interest rates will remain at present levels at least through the summer of 2019.

In the post-meeting press conference, ECB President Mario Draghi delivered a dovish shift and said that risks to the Euro-zone's growth outlook remained broadly balanced but were shifting to the downside. Meanwhile, the policymakers also lowered their forecasts for economic growth in 2018 and 2019, now see a growth of 1.9% this year (down from 2%) and 1.7% in 2019 (down from 1.8%). On inflation, the central bank now expects a 1.8% rise in 2018 versus a previous forecast of 1.7% but was largely offset by a downward revision of inflation for 2019, which is now seen at 1.6% versus a previous forecast of 1.7%.

The shared currency turned softer in reaction to the downbeat outlook, though the downside remained cushioned amid uncertainty over the Fed's rate hike path in 2019, especially after the US President Donald Trump latest criticism. In a Fox News interview on Thursday, Trump commented on the tightening policy and said that he hopes the Fed won't raise interest rates anymore. Market participants, however, remain convinced that the central bank will raise its benchmark interest rate by 25bps  for a fourth and final time this year on Dec. 19. Hence, the key focus will be on the updated dot-plot, where the policymakers are expected to cut their forecast of 2019 rate increases and eventually help determine the pair's next leg of a directional move.

In the meantime, today's economic docket, highlighting the release of flash Euro-zone PMIs, followed by the US monthly retail sales data, later during the early North-American session, will be looked upon for some short-term trading impetus on the last trading day of the week.

From a technical perspective, nothing seems to have changed for the pair and the risk remains tilted to the downside. A convincing break through a short-term ascending trend-line support, forming a part of a symmetrical triangle on the daily chart will reaffirm the bearish outlook and accelerate the slide back towards yearly lows, around the 1.1215 region. The downward momentum could further get extended even below the 1.1200 handle toward the next support near the 1.1160 region.

On the flip side, any meaningful up-move might continue to confront some fresh supply near the 1.1400 handle, coinciding with the symmetrical triangle resistance, and keep a lid on any runaway rally. However, a sustained move beyond the mentioned barrier, leading to a subsequent move beyond the 1.1425-30 resistance could prompt some short-covering move and assist the pair to aim towards reclaiming the key 1.1500 psychological mark.