History tends to repeat itself, only with new scenery. Just as investors began to think that Iran and the US would shoot a little and then sit down at the negotiating table, the Houthis reminded everyone of themsevles with their first attack in months on commercial vessels in the Bab el-Mandeb Strait. Formally, it is a narrow choke point at the mouth of the Red Sea; in practice it is the world's second-most important artery for oil trade after the Strait of Hormuz. It is still unclear how badly the ships were hit, but some tankers have already started avoiding the strait. Brent reacted by rising to almost $99 a barrel, up about 40% since the early-July flare-up of the conflict.

EUR/USD responded to this news before the ECB decision. Buying the euro on rumours of Christine Lagarde's "hawkish" rhetoric turned into selling on the facts even before her post-meeting Governing Council press conference began. Investors chose to believe oil rather than the central bank chair.

The European Central Bank is likely to keep the deposit rate at 2.25%. Neither analysts nor the futures market expected a second consecutive hike after June's move. According to a Bloomberg survey, economists expect the ECB's tightening cycle to conclude with a September increase. Nevertheless, ING does not rule out that an "unexpected move" could still occur if oil keeps rising.

German bond yields

The yield on 10-year German bunds rose to its highest level since 2011, gaining three basis points to 3.21%. The futures market is pricing in almost two ECB rate hikes by year-end, and swaps imply a 75% probability of two Fed tightening moves. Joachim Nagel warned last week that the dynamics of energy prices remain the decisive factor for future inflation, so the regulator will keep a vigilant stance.

The correlation between the debt and oil markets has returned in full force, although short-end yields have proven stickier than during the May rally. The signal is clear: the higher Brent climbs, the stronger the headwind for both bonds and stocks.

The Houthis' attack achieved more than weeks of diplomacy — it brought fear back to the markets. As long as Washington and Tehran show no willingness to sit down at the negotiating table, EUR/USD risks continuing to follow the rules of the oil market rather than those of monetary policy. Isn't it time to admit that the fate of the euro is decided not in Frankfurt but in the Red Sea?

Technically, on the daily chart, EUR/USD registered a rejection from fair value followed by a sharp move toward the lower boundary of the 1.138–1.145 range. This shows the strength of the bears and provides a basis for selling if prices do not return to 1.1425 in the near term. Another trigger for building short positions would be a decisive break of support at 1.138.