The dollar took the stage and delivered a case for a strong labor market and persistent inflation, but the audience was already leaving before the closing arguments. While the greenback's spokespeople pressed their case, oil and Treasury yields were collapsing behind them, and EUR/USD seized the opportunity to counterattack.

Strong US employment data gives Fed officials cover to sound hawkish. Richmond Fed President Tom Barkin says that with healthy demand and stubbornly high inflation, the direction of policy is clear. His Chicago counterpart, Austan Goolsbee, argues that the Fed must combat economic overheating that is also fueling the AI investment boom. Market odds of a December interest rate hike climbed to 84%, and the probability of two tightening moves over the next year rose to 71%.

US Treasury yields dynamics

In theory, that should push Treasury yields higher and strengthen the dollar. In practice, the bond market has continued to move lower along with Brent, and the greenback is reacting more to yields and oil than to Fed rhetoric, clearing a path higher for EUR/USD.

De-escalation in the Middle East is another negative factor for the dollar. Donald Trump called renewed strikes on Iran unlikely and appointed longtime opponent of war Stephen Miller as his new chief of staff. Democrats are debating whether to push the president to withdraw forces from the region.

Oil price dynamics across different delivery dates

Investors are unwinding the "Trump premium" priced into oil, and Brent has fallen by more than 20% from its October peaks. Reuters data shows that in October, OPEC production recovered to about 90% of pre-conflict levels, and China's oil imports returned to late-February levels. Even after the drop, crude remains roughly 50% above pre-conflict levels.

Geopolitical risk direction is still unclear. Iran continues to target tankers in the Strait of Hormuz, and Tehran is watching whether the White House's stance will change after the midterms. If talks stall, oil could reverse higher and give the dollar back some ground.

Another headwind for the greenback is the prospect of softer US inflation in October. A notable cooldown in CPI could open the way for EUR/USD above 1.13. Faster consumer price gains would push the pair back toward 1.12.

In my view, in this round, the market is cheering for oil, not the Fed—and the Fed should get used to it.

Technically, the daily EUR/USD chart shows an expanding wedge pattern. A return above fair value near 1.122 is a positive sign for bulls. However, a sustained rally requires a breakout and consolidation above the upper boundary of the 1.113–1.127 trading range.