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The euro looks set to finish the week in positive territory, adding nearly 0.3% since Monday. Still, the shared currency remains on the defensive, holding just slightly above long-term lows seen last month around 1.0350. The EURUSD pair has been trading below the descending 20-DMA since the plunge witnessed earlier this month. It looks like the euro will continue to suffer selling on rallies as dollar dominance remains intact due to the Fed’s aggressive tightening plan.

Meanwhile, ECB rate hike bets continued to cool this week. Now, the money market pricing reflects less than 150 bps worth of rate hikes by the central bank by year-end, while last week, markets saw around 170 bps. Interestingly, expectations kept sliding even as ECB vice president Luis de Guindos said today that the primary target for the bank is inflation. By contrast, Fed's Bullard highlighted in his latest remarks that the market is fully pricing in the idea they are getting rates to 3.5% by end-2022.

Earlier in the week, EURUSD was rejected from the 1.0600 mark, strengthened by the mentioned moving average, suggesting the pair may need an extra driver to make a decisive and sustained break above this hurdle in the coming days or weeks. On the downside, the shared currency should hold above 1.0470 so that to avoid a deeper sell-off towards early-2017 lows.

In the longer term, the dollar will continue to outperform its rivals (including the euro) this year as the Fed keeps tightening in an aggressive manner while the ECB looks indecisive as compared to its US counterpart. These days, Fed officials signal they would likely back another big interest rate hike next month unless inflation data improves.