Fish seek deeper water, and investors seek higher returns. European markets in 2026 are proving this truth better than any textbook. EUR/USD shot up to a 7?week high, settling above $1.15. According to MUFG Bank, the pair will reach 1.20 by mid?next year — reserve managers around the world are diversifying holdings, and the euro is becoming the number?one currency in terms of share growth in portfolios over the next 12–24 months.

Dynamics of Revisions to Earnings Forecasts for EuroStoxx 600 Companies

The Stoxx Europe 600 index has added about 12% year?to?date; German, Italian, and French benchmarks are storming record highs; and bunds are outpacing US Treasuries in yield growth. MSCI Europe constituents reported a 17% earnings increase in the second quarter — the sharpest jump since late 2022, according to Bloomberg Intelligence. BlackRock says investors are attracted by earnings resilience, and the AI theme in Europe looks like a less risky bet than concentrated positions in Asia and the US.

But it's not only earnings figures driving capital to the EU. According to Goldman Sachs, European equities saw the strongest inflows in a decade — excluding 2021 — and foreign investors have driven almost all of them. Morningstar data show that in July net inflows into euro?area government bond ETFs amounted to €1.45 billion — more than double the €655 million invested in dollar?denominated equivalents. Japan is also voting with its money: balance?of?payments data show Japanese investors were buying French sovereign debt while selling US Treasuries and Australian bonds.

At the same time, the eurozone is still growing more slowly than the US economy: 0.8% and 1.2% GDP in 2026 and 2027 versus 2.2% and 2.1% in the US. The European Central Bank has already raised rates by a quarter point and, according to Commerzbank, its policy path is easier to read than the Fed's, where communication is changing before our eyes. The gap between 30?year Treasuries and bunds has reached a one?year high — confidence in the US fiscal trajectory is waning.

Meanwhile, the euro is not standing alone without external help. Oil retreated after signals from Pakistan about an imminent US?Iran agreement: Brent pulled back to $88 from an intraday high of $90, as intermediaries said the parties are close to a resolution. Nevertheless, headlines remain volatile — new radical demands from Trump toward Tehran have once again clouded the prospects for a deal.

So what will ultimately decide the fate of the rally — earnings season, rate divergence or geopolitics? The answer this summer will come not from Brussels or Washington, but from July's US inflation data.

Technically, on the daily chart, EUR/USD is forming a Wolfe Wave pattern. Its target points to the possibility of the euro rising above 1.2000 in the medium term. As long as the major currency pair trades above 1.1525, the emphasis should remain on buying.