It's option + u, and you don't have to hold them down, just press them simultaneously. That should give you the two dots where the cursor is. If you then press either a, o, u, A, O, or U, it'll convert those two dots into ä, ö, ü, Ä, Ö, or Ü respectively.
But only if your keyboard is set to "English (United States)" but not "English (International)" for some reason.
And it's macOS (i.e. OSX) only, iOS has that long-press of a, o, or u, only.
Either way, I'm partial to the option+u thing because its faster and because it's been like this forever. But I think the long-press variant is easier to remember and a whole lot more intuitive, so I think that's the way to go for infrequent users.
That's ridiculous. That switch clearly belongs on the bottom.