Brent has returned above $80/bbl amid an escalation between the Houthis and Saudi Arabia in the Red Sea, yet the bulls' push on EUR/USD seems unstoppable. The euro is rising on hopes for a new US-Iran deal to reopen the Strait of Hormuz. Donald Trump said signatures could come "today or tomorrow." Axios reports there is no talk of a transit fee.

Energy-import-dependent Europe would breathe easier if Brent returns to pre-crisis levels. Its economy would continue to recover, narrowing the GDP growth gap with the US and laying a firmer foundation for a EUR/USD rally.

European economic dynamics

At first glance, a weakening US dollar looks illogical. The United States stands on a solid footing: massive AI investments and energy exports provide support, Treasury yields are high, and stock indices are testing record highs — all factors that should attract capital to the US and strengthen the greenback. Moreover, the futures market still prices in possible Fed tightening and does not rule out two rate hikes in 2026.

But on FX, it's not the current snapshot that matters so much as the dynamic. The growth and rate differentials between the US and the euro area are narrowing. The odds of Fed tightening are falling. That alone is enough for EUR/USD to grind higher. ANZ expects the dollar to continue weakening through year-end as macro data deteriorate and the probability of policy tightening drops — although the process will not be rushed.

S&P 500, EuroStoxx 600 and EPS dynamics

European assets are ready to compete with US ones in 2026. The EuroStoxx 600 is less exposed to AI-linked technology stocks that US investors are offloading. Coupled with 16% earnings growth in Q2, falling oil prices, positive euro?area economic signals and a lower chance of ECB hikes, European issuers look well supported. Capital flows into the region from the US and Asia create a tailwind for EUR/USD.

Thus, despite strong US economic data, the appeal of American assets and market belief in Fed hikes, a shrinking GDP differential, and capital flows into Europe are encouraging dollar selling.

Technically, on the daily chart, EUR/USD is attempting to restore an uptrend. We continue to favour a buy strategy. A break above resistance at 1.1555 would be a signal to add to existing long positions.