View display nodes with taxonomy term found in URL
I gave up trying to understand why it doesn't work and resorted to using Has Taxonomy term ID instead. 


The URL contains the taxonomy term ID so only a Contextual Filter is needed. In raw value the URL is taxonomy/term/[id] , so all that needs to be done is tell the Contextual Filter to Provide default value from Type Raw value from URL and Path Component 3. I also added a Specify validation criteria WhenThe Filter Value is available or a default is provided, of Validator Taxonomy term ID and chose the appropriate Vocabulary.