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BCSC Warns Against Binary Uno

The British Columbia Securities Commission warned the public about online options trading site Binary Uno last week, as reports of the company operating in the region came to light. Binary Uno, which claims to be based in London, was soliciting consumers before being noticed by regulators. The BCSC has now included the company in its Investment Caution List. While Binary Uno is not technically banned from operating in British Columbia, regulators have asked consumers to exercise caution and avoid dealing with the unregulated investment services.

This is not the first time this month the BCSC has spoken out against unregulated brokers in its jurisdiction, with the regulating body also taking action against Edgedale Finance just a day earlier. Furthermore, it also mirrors a growing trend of scrutiny towards the binary options industry and especially against unregulated brokers whose predatory practices have resulted in millions of dollars’ worth of losses worldwide.

New Warning

Binary Uno, which has been operating without a license in Canada—and specifically in British Columbia—is the latest entry to the British Columbia Securities Commission’s Investment Caution List. The regulatory group released a statement noting that the company, which alleges to be based in London, has been soliciting its services to Canadian citizens despite not having a license or being regulated at all. Regulators were first turned on to the situation after citizens reported being solicited to invest.

Regulators in British Columbia and across Canada have strengthened their actions against unregulated brokers who are operating without license and in many cases harming consumers with tactics that have been described as aggressive and even predatory. The case with Binary Uno highlights how difficult dealing with these unlicensed brokers can be. The company, which is owned and run by DOM Technology Services—a Glasgow-based company—claims to be based in London. However, at different times, Binary Uno has represented itself to reporters as being based out of the UK before later mentioning some of its services were provided from Romania when pressed for information.

The BC Securities Commission’s action does not constitute a ban or real legal action against Binary Uno. The regulating body has simply warned consumers against investing or using any of Binary Uno’s products. However, the broker is still able to continue providing services in the area—for now—as long as there is no defined legal action taken by the provincial or broader Canadian governments.

Toughening climate

The warning is only one in a series of actions taken by regulators in recent months in a widespread attempt to clean up the binary options industry. In British Columbia alone, the BCSC’s release was the second such statement in two days following the regulator’s warning against options broker Edgedale Finance and just weeks since a similar warning against foreign exchange platform XForex. For the time being, Canadian citizens can still log on and open accounts with these companies, but regulatory momentum has been accelerating.

In the United States, the binary options industry is heavily regulated and violators have been forced to pay massive settlements following legal actions. In Europe, officials have grown less patient with the industry and have moved to bolster their tools to deal with unregulated entities. Meanwhile, in Belgium, the government outright banned binary options while French officials banned direct and online marketing to French citizens.

On the whole, the binary options industry has seen a resurgence of unregulated brokers. By taking advantage of the vacuum left by compliant brokers that have not been able to afford the costs of proper regulation, these unregulated entities are able to operate freely.

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AMF Warns on More Binary Options Brokers

The French Authorite de Marches Financiers (AMF) continued its crusade against the binary options industry this week, extending their list of unauthorized brokers operating in the country. The warning comes after several of the websites added to the list failed to produce adequate information regarding investment services providers or regulation. As such, they will now be operating under much closer scrutiny of a French regulator that is increasingly hostile towards the industry.

France’s battle with the binary options industry comes after years of research found that many brokers engaged in deceptive practices, aggressive marketing methods, and many times fraud, resulting in the loss of millions of Euros as well as a slew of complaints. It remains to be seen whether France’s toughened stance on binary options will help clean up the industry, or will actually backfire, creating a vacuum for unregulated brokers to step in further.

The Blacklist Grows

The AMF took further action against the binary options industry in the country, adding Boss Capital, Loyal Binary, B4Trade, Brevan Invest, Limited-Binary.com, SC-Options, and Swiss Capital Invest to its ever growing blacklist of unauthorized brokers. The brokers were included on the basis of the AMF being unable to find any record or documents pertaining to the companies’ authorized investment services providers or licenses. As a result, the brokers’ websites will now face much closer review from regulatory officials.

Being added to the list does not mean necessarily mean the companies are unable to operate in France considering the difficultly for French officials to actually shut down these noncompliant service providers. The AMF strongly recommends against using these services, as they are operating illegally, and are not interested in complying with existing consumer protection laws.

France has been leading the battle against unregulated brokers operating in Europe, enforcing some of the toughest laws and regulations in an attempt to protect French consumers. The newfound zeal for the crackdown stems from a series of studies conducted by the AMF which found that unlicensed binary options brokers had cost French citizens millions of Euros in losses. As a result, the AMF originally created their blacklist—one of the first of its kind—as well as moved to block companies from operating within its borders.

Self-Inflicted

While many industry insiders decry France’s toughening position on binary options brokerage, in reality, it is largely as a result of the industry’s actions that French officials have had the momentum to craft truly enforceable laws and regulations. A four-year study of the industry found that almost 89.00% of consumers who traded binary options were losing their entire investments. All told, French binary options clients lost an average of €11,000 between 2009 and 2012, with a total of over 13,000 consumers losing approximately €175 million. A second study carried out in 2014 found that online binary options brokers constantly engaged in aggressive sales tactics including pressure to join, false promises of unrealistic returns, unsolicited cold calls, and in some cases downright fraud.

Help Or Harm?

While the new regulatory framework is likely to be lauded by government officials and consumers alike, in reality the industry could be facing a serious crisis in France. While there are still companies that operate legitimately—and in fact, a few have created a lobbying group to protect their interests—many have taken French funds via shady and fraudulent practices that have eroded confidence in the broader industry. By toughening regulations so much, France might unwittingly force legitimate businesses out of the country, creating a vacuum that could easily be filled by unregulated and potentially harmful brokers.

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How Unregulated Binary Options Brokers Cost Investors Millions

British and Australian citizens have lost millions of dollars in 2016 alone to unregulated Binary Options brokers according to a pair of reports published in both countries. In recent years, thanks to the explosion of the industry, several unregulated brokers have emerged looking to turn a quick profit from unsuspecting customers. With aggressive sales tactics and shady practices with existing clients, these unregulated brokers have become a flash point in the industry during recent months.

The influx of these less-than-reputable companies has created a major problem for those that look to work within the regulatory framework of the countries they operate in. From tougher restrictions to outright bans, many legitimate brokers have suffered significantly thanks to the fraudulent actions of a few. While the industry’s response has been positive and even as a trend of consolidation continues to weed out smaller companies, the industry must look inwards if it wants to survive.

A Major “Scam”

According to separate reports by both Australia’s Scamwatch and the UK’s Sunday Times, British and Australian citizens have been defrauded of millions of dollars in 2016 alone by a series of unregulated and below-board binary options brokers promoting “get-rich-quick” schemes. In the UK, the news investigation found that the UK police’s Action Fraud center has received 245 reports on binary trading scams that have resulted in an average loss of £20,000—a total of £12 million this year alone. Most of the reports center on companies that are incorporated and licensed outside of the UK—many times in Cyprus—that operate mostly untouched by British laws and regulators.

In Australia, Scamwatch, a scam recognition service operated by the Australian Competition and Consumer Commission, reported that Australian customers have lost over $3 million in total to binary option scams since the start of 2016. In 2015, the total number of losses stemming from investment scams—which include binary options—was $229 million. Australia has been heavy-handed in its approach to dealing with the industry, cracking down on unregulated firms and adding more and more companies to its blacklist. Regardless, consumers continue to lose their money to these unregulated companies.

In both countries, consumers reported the same causes and problems with the unregulated industry. In general, customers mentioned these brokers’ aggressive sales tactics, which include repeated calls, pressure to join, and promises of too-good-to-be-true returns on investment. In reality, many of these companies are accused of not allowing customers to withdraw their funds, even after positive returns, and of disappearing once customers take more serious action. As a result, consumers have become increasingly vocal in both countries, as well as abroad, leading regulators to take a tougher stance towards the industry as a whole.

Collateral Damage

With regulators increasingly wary of the industry thanks to the reputation-damaging actions of a few, legitimate binary brokers have been some of the worst-hit by these developments. Across Europe, officials have been toughening regulatory frameworks. Unfortunately, the tougher laws are disproportionately harmful to those who choose to work within them, creating higher costs to remain compliant and in many cases driving legitimate brokers out of business. In some cases, regulators have gone as far as to push the industry out of the country, as in the case of Belgium.

Ultimately, the problem with unregulated brokers is one that will continue to affect consumers and the industry as a whole while regulators catch up with these nefarious companies’ underhanded tactics. Even though there have major strides made to make binary options trading safer for investors, the damage done to the industry’s reputation will be hard to mend.

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Oil Prices Back on the Slide as Glut Potential Grows

After a summer that saw prices find a home between $40.00 and $50.00 per barrel, oil prices are once again headed for another downturn as production outages that forced key global producers to cut output experience a rebound in exports. As traders prepare for the upcoming “informal” output freeze meeting that is scheduled to take place on the sidelines of the approaching industry conference in Algeria, jawboning will be immense in the coming sessions, contributing to significant volatility. However, with the revival of Nigerian outputs along with growing Libyan potential, conditions that forced oil prices lower are making a swift comeback. Although the supply-demand gap has narrowed to a degree in recent months, this additional source of supply may be enough to end the fragile equilibrium that has prevailed the last few months.

The Output Rebound

Oil prices have been especially volatile in recent weeks amid heightened chatter of new output freeze talks at the approaching conference in Algeria. Although certain OPEC members purportedly support the move, especially those struggling with low prices, others remain at odds as to the best way to proceed, especially considering the low probability of Iranian participation. In particular, Saudi Arabia is unlikely to agree to any conditions that do not stipulate a cap on Iranian production. With these two powerbrokers at odds, the possibility of a deal remains elusive. Additionally, one of the foreseeable consequences of higher oil prices is the reemergence of shuttered American production that is profitable with crude oil at prices in the mid-$50.00s and above. Furthermore, shale production is not going away as evidenced by efficient producers being profitable at less than $25.00 per barrel.

However, aside from just agreeing to a deal to put in a ceiling in production remains the problem of existing production capacity which is currently not operational. After months of violence and shutdowns in the Niger Delta region of Nigeria, major multinationals Exxon Mobil and Royal Dutch Shell are preparing to resume daily exports of nearly 500,000 barrels per day. Furthermore, in Libya, an export restrictions have been lifted on 3 ports, adding the potential for another 300,000 barrels per day to hit global energy markets. This alone has the ability to unleash a wave on losses on oil futures in the coming days and weeks. Besides output is the demand function of the price equation. The major factor that could indicate the direction of purchases is China’s filling strategic petroleum reserves. Any topping off could see purchases fall steeply, adding to the downward pressure on oil prices.

Technically Speaking

Looking at crude oil futures, the price action stands at a very interesting point between the more medium-term uptrend that has transpired since the February lows and the current range that has been intact since April. On a shorter-term basis, there should be pause for concern considering the 61.8% Fibonacci retracement level is currently the support to watch with prices near $42.40. A candlestick close below this level paves the way towards the $41.30 level which happens to coincide with the 200-day moving average acting as support. Furthermore, a close below this level would also serve as confirmation of a new downward trend emerging over the last month before attempting a retest of August lows near $39.10 per barrel. Considering the cross below the 50-day moving average, the momentum lower is well underway.

However, despite the near-term bearish bias considering the potential ongoing reversal to the more medium-term upward trend, is the emerging head and shoulders bullish pattern. At this point, the right shoulder of the formation is working towards completion with a fully formed shoulder reaching towards $52.50 per barrel. A candlestick close above this level would be considered an upside breakout, especially if accompanied by higher trading volumes and momentum. By the same token, a candlestick close below the shoulder line at $40.00 per barrel could be a signal that the pattern has ultimately broken down and that oil prices are facing a new leg of the longer-term downward trend. Should this be the case, the major support level to examine below $39.10 is $35.00 per barrel.

Looking Ahead

Considering the high stakes of the upcoming conference in Algeria ahead of November’s general OPEC meeting, there is likely a lot more volatility to come for oil prices in the approaching sessions. Between chatter from oil ministers to confirmation or dismissals of talks, there is a lot that can happen to prices that would be both negative and positive. However, from a bigger picture perspective, looking at the current state of oversupply and the possibility for the divide to grow wider between supply and demand between Nigeria and Libya, the downward pressure on prices is not about to disappear soon. The question, is how low will prices go.

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TechFinancials Reports Record Results During the First Half of 2016

Binary Options platform and brokerage group TechFinancials (TECH:LON) reported record earnings for the first half of the year, sending shares soaring as the company easily exceeded analyst expectations. TechFinancials recorded a robust increase in revenues, as well as gains in operating and net profit on its way to its best six-month earnings period. Management listed a variety of factors as reasons for success, including a recent restructuring that has resulted in gains for its Business-to-Consumer division.

The company’s outlook looks decidedly positive heading into the second half of the year. Despite a more hostile regulatory environment in Europe, the company has managed to increase its earnings for its consumer branch while also managing to expand its reach with a series of joint ventures that could add tremendous value to TechFinancials’ bottom line. Shares, which had already been trending higher in recent months, soared on the news.

An Impressive Month

TechFinancials roared to its best ever earnings in the first half of 2016, easily besting even the company’s own expectations and nearly doubling their operating profits. The company recorded an impressive six months, with earnings growing by 34.00% over the same period in 2015. For the reporting period ending June 30th the company brought in $9.9 million, easily besting the previous year’s $7.3 million as well as their own guidance of $9.6 million. In an encouraging sign, those earnings came almost evenly from TechFinancials’ two main segments—consumer and licensing—which pulled in impressive gains of $5.4 million and $4.5 million, respectively. On the whole, the company improved its operating profit to $1.6 million for the first six months of the year, a monumental improvement versus the comparable $0.1 million reported a year earlier.

The company’s Business-to-Consumer division benefited greatly from an internal restructuring which helped greatly reduce overhead costs and streamline the company’s operations. CEO Asaf Lahav also cited the company’s increasing penetration in emerging markets as a boost to the company’s bottom line. TechFinancials recently opened a new office in Hong Kong in order to expand its footprint in the Asian market.

Strong Future Ahead

During the earnings call, Lahav also mentioned that company’s strategy of finding opportunities for joint ventures has also earned them entry into new markets which will likely lead to greatly improved sales metrics when results are tabulated for the second half of the year. The company launched DragonFinancial Limited with Asian financial technology company OptionFortune—the makers of a trading platform focused on the Asia-Pacific region—a project which has already seen great gains since its launch at the start of the year.

Furthermore, TechFinancials has reached an agreement with US-based firm Cantor Fitzgerald. The US, which boasts some of the most stringent regulatory environment for binary options trading, is a virtually untapped market. The company has positioned itself strongly for a robust expansion in the coming year. Lahav also noted in his call that the company recently launched a third trading platform that is focused on Contracts for Difference. TechFinancials now boasts four platforms for specialized trading, including a mobile offering.

Shares of TechFinancials soared by 11.54% on Monday following the report, jumping to a high of GBp 16.00 before settling slightly lower at GBp 14.50 by the end of the session, its highest point since November of last year. This also follows the company’s massive 50.00% jump in August following surprisingly optimistic guidance for the first half. Lahav reported that both divisions in the company had gotten off to a solid start in the third quarter and were well in-line with market expectations.

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Forex and Binary Options Brokers Form Association to Represent Interests

A group of leading binary options, Forex brokers, and service providers have taken initial steps to create an industry association in order to combat negative perceptions and to standardize the industry. Moved by a wave of negative sentiment brought on largely by unregulated and non-compliant companies in the sector, officials in several European countries—namely in Belgium and France—have taken steps to block brokers and service providers from operating within their boundaries.

The new association will feature only European brokers, though its membership could be expanded in the near future, according to members. The group already has several goals related to standardization and improving the industry’s public perception. Regulators, especially in France, have taken significant steps to prevent binary options brokers from reaching French customers, with the AMF even proposing a ban on digital advertising. The country already has a trade association for retail brokers, though several will also join the wider European group.

Fighting against Unregulated Businesses

Several European Forex and binary options firms have decided to join forces and create an industry association in order to stem the tide of negative attention being driven in their direction thanks to unregulated and non-compliant companies that have tarnished the whole industry’s reputation. In recent months, there has been a new wave of brokers that have chosen to forgo regulatory efforts that can at times be costly and make turning a profit a more difficult proposition. As a result, several governments have been aggressive in combating these firms at the expense of those firms that are operating entirely within the regulatory framework.

In France, the Authorite des Marches Financiers (AMF), announced that it would propose a ban on all online advertising by binary and forex providers in the country, blocking all ads from companies where the leverage is greater than 1:20. The legislation joins a similar action in Belgium, though in that case the ban was on all forex and binary options products. The problem with these tougher laws, however, is that their sweeping nature also affects those companies that work entirely within European regulatory frameworks.

Binary options and forex brokers operating in France had already taken steps to create their own lobbying group, the Association Francaise de Courtiers et Prestataires de Services d’Investissement (AFCOPSI), in order to push against anti-broker sentiment stirring in government circles. The new association, called the European Brokers Association (EUBOA) has expanded the membership to include 50 regulated binary options and Forex providers based in Europe, including some of the industry’s leaders.

Outlook

The group will tackle some important industry issues including the operation of unlicensed subsidiaries by regulated brokers, call center practices, and marketing practices—including affiliates. EUBOA will also aim to stop regulators from placing more restrictions and limits on companies that are already compliant and focus on unregulated providers who are harming the broader industry. On the whole, the group will fight for regulated brokers who feel that they have been unfairly targeted in regulators’ rush to tackle the problem of unregulated providers.

In the short-term, EUBOA could be a public relations coup for the industry, especially if the group applies all of its initial talking points with plans that include better customer support and acquisition training, increased cooperation with regulators, and general service improvements. As it stands, European binary options and Forex brokers are facing an uphill battle to return to the good graces of regulators. However, in France, sentiment has remained negative following an AMF report that found customers had filed complaints for millions of Euros in losses from dishonest practices.

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CySEC Appoints Liquidator For SkyFX and Capital Option Umbrella

The Cyprus Securities and Exchanges Commission appointed a liquidator for Trademarker Ltd., the owner of trading websites SkyFX and Capital Option, in its bankruptcy proceedings. The company has been under sharp scrutiny for a large part of 2016 stemming from a series of compliance violations and the company’s lack of cooperation in resolving these issues.

Trademarker had its license provisionally suspended in February after CySEC gave it an opportunity to fix its issues, but the company’s websites continued operating with no resolution, forcing the regulator to take a firmer stand. Now, the liquidator will attempt to recover all the funds owed to clients. The situation is the latest high profile confrontation between regulators and binary options brokers, as countries become more aggressive in fighting against what they deem to be deceptive business practices.

Shutting Down

Trademarker Ltd. Has been appointed a liquidator by CySEC as part of its bankruptcy proceedings. Now, Andrea Andronikou of Larnaka will act as provisional liquidator and will work to return all funds to clients. In the event the company is unable to do so, CySEC would tap into the country’s Investors Compensation Fund. The bankruptcy for the company comes after months of controversy that saw Trademarker and its websites SkyFX and Capital Option face off with CySEC over compliance violations and regulatory issues.

Trademarkers’ websites were under scrutiny of regulators from the beginning of this year. In February, CySEC provisionally suspended the company’s license to operate as a broker and fined them €20,000, citing an abundance of regulatory violations. Among them, there were issues with Trademarker outsourcing parts of its operations and activities to unlicensed third parties and ownership also faced issues regarding illegal operations. CySEC gave the company 15 days to resolve the issues, but was forced to act again in May when it made the provisional suspension a permanent one.

Liquidation Underway

The company will now be required to return all funds to clients in accordance with bankruptcy proceedings and will shutter its doors. The move is the latest high profile case involving regulators and a segment of binary options brokers that seem to eschew regulatory measures in favor of profits. CySEC has worked recently to strengthen its regulatory framework, but has been struggling somewhat. The Cypriot regulatory body has faced criticism from several European countries, as well as the European Securities and Markets Authority over claims that it does not do enough to actually regulate the companies and brokerage sites registered in its country.

CySEC has also faced criticism recently over its perceived lack of transparency in dealing with these types of cases. In Trademarker’s case, regulators delayed the announcement of a liquidator for a full month without explanation, raising suspicion. During that period, Trademarker websites were still operational. Similarly, in December of last year CySEC bundled a series of announcements regarding fines into a single release on a Friday afternoon. All in all, CySEC is under heavy pressure to reform, and changes made have not gone far enough.

The case also highlights a broader tendency in the industry as the closure of another major binary options broker further consolidates the industry. As recently as a year ago, the market was heavily saturated with different competitors. Now, a series of policies and economic factors have caused several to shut down, paring down a crowded field. In France, regulators have proposed and are attempting to ban online advertising to French customers. In Belgium, the industry has been banned outright. Several other countries, including Australia and Canada, have also moved to strengthen restrictions on the industry.

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Yellen Enough to Push Gold Prices Over a Cliff?

In her much anticipated speech at the Jackson Hole Symposium last week, Federal Reserve Chair Janet Yellen remarked on her belief that the US economy was showing enough strength for that the Federal Reserve to contemplate raising interest rates. Besides lifting the veil on the thoughts of the individual presiding over the largest global central bank, Yellen’s comments were enough to see interest rate hike speculation rise tremendously heading into September. However, she like other critical Federal Reserve members cautioned that the approach to monetary policy would remain heavily data dependent, placing the responsibility for any future decisions on Friday’s upcoming payrolls report. While Yellen’s speech sparked a rally in the US dollar, other asset classes have not fared so well since the announcement, with precious metals and specifically gold hitting multi-week lows in response to the developments.

Gold Remains Sensitive To US Dollar

Dollar-denominated gold (XAUUSD) maintains a very strong historical inverse relationship with the US dollar, meaning that when one rises, the other typically falls. During rare events, the two assets may sometimes move in tandem in one direction, but in the bigger picture scheme, the two have maintained their dependency, with the latest Yellen speech serving as further evidence. Although the immediate kneejerk reaction to her speech was positive for risk and haven assets such as equities and precious metals, a follow up interview with Federal Reserve Vice Chair Stanley Fischer confirmed that the door was still open for two rate hikes before the end of the year, sending the dollar higher for its best performance since the Brexit votes were tallied.

Before the Federal Reserve can take any action on rates, the near-term data that could end any rate hike speculation is employment and inflation, two of the most watched data points for the Central Bank. Friday’s job’s report will be the main event before the September FOMC meeting, however, the consumer price index data is also due ahead of the next Central Bank meeting. Based on the Fed’s dual mandate and stated “data dependency” in making decisions, these two figures will be crucial to determining the path of interest rates. In the case of gold, any move to raise interest rates will be negative for gold prices as it will likely translate to upside in the dollar. Furthermore, any timeline for future hikes will spark a further selloff in precious metals.

Technically Speaking

When looking at the candlestick chart of gold prices several curious factors begin to emerge. Aside from the double top formation that emerged in gold prices back in the beginning of August, the recent move below the 50-day moving average could be a preliminary indication that downside momentum is picking up, especially after the volatility that transpired after Janet Yellen’s speech last Friday. While moving averages that are trending higher below the price action are traditionally viewed as a sign of support, the break of the 50-day moving averages sets XAUUSD up for another test of support at $1315 per troy ounce. If broken, it means a possible run towards long-term support at $1250 which may neatly coincide with the 200-day moving average if a break below $1315 occurs.

Even though gold experienced a “golden cross” back in February which is traditionally viewed as a highly bullish technical signal, since then, performance has been lackluster. On a short-term basis, the emergence of a triangle consolidation could have a more bearish bias, especially if key support at $1315 is crossed to the downside, suggesting a downward breakout. Although gold has lost its footing in recent sessions, neither the RSI or the MACD are suggesting oversold conditions in the precious metal, indicating prices have further room to fall before encountering any serious buying pressure to prop up prices. However, in the near-term, the focus will be less on the technicals and more devoted to fundamental announcements which could readily shift the Federal Reserve’s stance on monetary policy.

Looking Ahead

Friday’s nonfarm payroll data will be a crucial turning point in the debate on the merit of raising interest rates during the September FOMC Meeting. Any matching or beat of current consensus estimates of 180,000 jobs created during the month of August might be enough to tip the scales in favor of a rate hike at the upcoming meeting of Federal Reserve voting members. Although investors might still be hanging onto sentiment from the disappointing 11,000 jobs added during May, the June and July payroll readings experienced a massive rebound, setting the stage for another upside surprise in August. Should a positive number come out on Friday, it could stoke further gains in the US dollar and further raise expectations of an upcoming shift in policy, translating to further downside pressure on gold prices over the medium-term.

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Leverate Admits Defeat, Moves Away from Binary Options

After two years in a crowded industry, Leverate has announced they are moving away from the binary options industry and are attempting to sell their BX8 platform. Despite cementing a small place within the sector, the company has fallen victim to many of the same problems plaguing competitors in the industry. Market saturation, toughening regulations, and difficulty breaking into new markets has driven many companies to look at alternatives.

The company has been retooling for the past year, hiring a new COO and restructuring the company, including reassigning and laying off workers, but it seems it has all been for naught. Leverate will look to move its platform and focus on its other variety of products, but their exit from the binary options industry is a potentially troubling sign for the sector at large. On the whole, it appears Leverate will look to focus on more competitive sectors of its business.

Shutting Down

Online trading platforms provider Leverate announced last week that it is exiting the binary options industry. The company, which first entered the space in 2014, is looking to divest itself from its BX8 binary options platform. Leverate first offered the product to compete with other existing platforms, including features such as the ability to trade with Bitcoin and other digital currencies, as well as a strong suite of social features that helped set it apart from other similar products. BX8 was generally well received at launch and was even upgraded in 2015 with new features such as long term options and social trading.

Two years later, however, Leverate seems to be reversing course and looking to leave the industry it had recently hoped to dominate. As a result of a variety of factors, the company is attempting to sell the platform, including any current clients operating on BX8, but has yet to find a suitable customer. In case Leverate does not find a buyer, they are ready to simply shelve the platform. While the company is still providing support for brokers, it has stopped offering services to new clients.

A Difficult Time

Leverate’s binary options division has run into trouble as a result of internal difficulties as well as broader forces affecting the industry at large. Internally, Leverate has been attempting to restructure for the better part of the past year. The company also attempted to open a new retail brokerage—LegacyFX—which was forced to shutter its doors after a few months of operation. On a wider scale, a major factor behind Leverate’s problems in the industry is the increased level of competition and the market saturation from similar products.

Leverate was not able to take enough of a market share from major competitors in the industry. On a broader level, binary options firms and services have been facing increased scrutiny as regulators in Europe and other regions have increased their efforts to regulate the industry, a sector many consumers and officials view as potentially harmful. Both Belgium and France have taken major steps to crack down on the industry, with the former officially banning the industry, while France has blocked e-advertising on a wide variety of financial products it deems risky including binary options.

While Leverate will be exiting the binary options industry, it remains open for business and will look to refocus its efforts on sectors where it holds more of a competitive advantage. In the meantime, Leverate is still a leading provider of social trading services thanks to its Sirix platform and it will look to bolster its automated platforms for trading foreign exchange.

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Unregulated Binary Options Brokers Using Scottish Shell Firms as Tax-Havens

A recent investigation by The Herald, a Scottish newspaper, revealed that several unregulated and unscrupulous binary options brokers have been using a centuries-old loophole that has allowed them to present a legitimate front for their companies. Despite being unregulated and incorporated in tax-havens such as Seychelles and other traditional locales, these companies have used the legal gap to incorporate in Scotland and avoid paying taxes while giving an air of legitimacy to their companies despite having little or no actual presence in the country.

As a result, Scottish lawmakers have pled with the UK Parliament to close the loophole, which has also reportedly been used to launder money for arms dealers, as a way to protect unsuspecting Scottish and British consumers from potential fraud. Overall, unregulated brokers have been suffering from stronger crackdowns across Europe, where financial watchdogs have stepped up their battle against the industry.

Exploiting a Loophole

Several unregulated binary options brokers have been taking advantage of a loophole in Scottish corporate law that allows them to incorporate as “Scottish Limited Partnerships.” This form of business is effectively a zero-tax “offshore company,” allowing brokers to have a presence in a regulated marketplace without actually requiring them to be regulated. This type of incorporation, as well as a few others, enable brokers to present themselves as local or locally regulated companies without having to turn over any financial records to regulators or pay any taxes locally. A report by The Herald revealed at least three large companies have taken advantage of the law thus far while many others that have similar arrangements.

In an earlier investigation, The Herald showed that the SLP loophole was also used by arms dealers in Eastern Europe as a way to effectively stash and launder funds without requiring them to declare or pay taxes on any of their gains. For binary options brokers, SLPs allow a foothold in Europe that lets companies present themselves to unwitting European investors as a legitimate and regulated entity without actually having to submit to any regulatory oversight. The Scottish newspaper directly named three unregulated brokers, all of whom have been blacklisted by France’s Authorite des Marches Financiers as Finpari, Barclays Traders, and Solution-Capital. According to the AMF, none of these firms are authorized investment service providers and furthermore do not appear to be regulated by any institution within the EU.

Heightened Crackdown

The Herald’s report comes as European authorities have taken a much stronger interest in the “over-the-counter” derivatives trading industry, specifically focusing on the unregulated brokers. This follows a significant increase in customer complaints of losing money to shady practices and companies that simply take funds and cut off contact. Several countries in Europe have begun to crack down heavily on the industry—both regulated and unregulated. In France, lawmakers have proposed a hard ban on binary options, while Belgium has actually gone a step further and implemented a full ban. Others have promised inquiries into the business and marketing practices.

In Scotland, lawmakers have increasingly voiced their concerns about the industry and specifically the legal loopholes that allow these unregulated companies to set up bases in their country while ignoring financial law and regulations. The UK’s Financial Conduct Authority issued a formal warning on unregulated brokers earlier in August, and has repeatedly signaled that binary options brokers cannot actually register as investment companies, but must instead submit to regulatory frameworks with the Gambling Commission. In Scotland, the Green and Labour political parties along with Liberal Democrats have all issued warnings on the industry and the use of SLPs.

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Loonie Gains May Swing To Losses If Oil Rebound Loses Steam

After a strong start to 2016 on the back of improvements in energy prices, the Canadian dollar is once more giving back ground to the US dollar following concerns about the stability of the recent rally in oil prices. The rebound in the Canadian dollar comes after years of losses which accelerated during the summer of 2014 when the prices of crude first began their slide into bear market territory. While crude oil has been able to stay elevated temporarily on the back of renewed output freeze rhetoric, there are a number of factors that could very well prevent a more permanent recovery in prices. With the potential for further interest rate cuts during the second half of the year as the economy struggles to regain its footing, the prospects for a further recovery in the Canadian dollar may be dim.

Downside Risks Remain Intact

The dependency of the Canadian dollar on the export economy means that the recent data could prove the catalyst for further interest rate cuts from the Bank of Canada. In spite of highly accommodative monetary policy, the economy has been unable to make up for the losses in the oil patch. The strongest indication of this phenomenon is evident in exports and the trade balance. Although traditionally Canada’s exports have helped to keep the trade balance swinging between surplus and deficit, the decline in energy has tipped the scales dramatically, leading to the recently reported record setting trade deficit. While the Central Bank has attempted to stimulate other areas of the economy to fill in the void left by low energy prices, so far, the results have been lackluster. As a result, lower rates may be inevitable, which may accelerate losses in the Loonie.

Outside of the drop in trade is the potential for another deep slide in energy prices. The most recent rally has come on the back of renewed discussion of the merits of a production freeze amongst OPEC members to help end the ongoing output glut. While it remains highly unlikely that certain members would agree to production ceilings at this stage of the game, it is nevertheless a possibility in spite of its low probability. Furthermore, what could really derail recent gains in prices is the recently restarted discussions between the Niger Delta Avengers and the Nigerian government. Should destruction of oil infrastructure come to a halt, Nigeria has the ability to add 700,000 barrels per day in output to global energy markets. This could not only throw the market off balance once more, but also lead to a precipitous decline in prices, sending the Canadian dollar tumbling.

Technically Speaking

After recovering from a precipitous slide that largely matched momentum in oil prices, the Loonie is once again losing its footing. Although oil prices have provided a relatively supportive backdrop, the traditional inverse correlation between USDCAD and oil means that any further losses in oil prices will be reflected to some degree by momentum higher in the currency pair. An inverse correlation implies that as one assets price goes up, another assets price goes down by a relative amount defined by the strength or weakness of the correlation. In the case of USDCAD, the inverse correlation currently is very strong, standing at -0.8698. While that means that any further rally in oil prices will stoke losses in the USDCAD pair, the opposite is also true.

Aside from the correlation, recent price action suggests a more mixed bias on a shorter-term basis. An emerging equidistant channel formation indicates that further upside may be in store for the USDCAD pair. After prices managed to bounce off the lower channel line, the next target for bullish position is the upper channel line. However, standing in the way of momentum higher is the 50-day moving average which is currently acting as resistance and trending above the price action. If broken, the 200-day moving average stands firm as the next level of resistance in conjunction with the upper bound of the equidistant channel. While these levels could potentially keep a lid on gains near-term, if broken to the upside, it could suggest a breakout higher and a significant resumption of upward momentum. In the meantime, it is worthwhile to keep an eye on oil prices for directional clues.

Looking Ahead

Oil inventory data due later in the week could be a significant driver of USDCAD momentum. However, aside from oil prices is upcoming an upcoming GDP figure set for release from the US. If it comes in stronger than anticipated, it could fuel US dollar momentum that sends the USDCAD pair rallying. However, absent US dollar momentum higher, the key drivers of Loonie weakness over the medium-term depends on oil prices and Canadian monetary policy.

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Belgium Shocks Industry With Derivatives Ban

Belgian authorities escalated the battle against unregulated “over-the-counter” derivatives brokers by passing a complete ban on providers of certain products, including binary options, CFDs, and Forex trading. The move comes as sentiment in Europe turns against brokers as a result of increasing numbers of complaints and problems related to unregulated brokers in the industry. The decision by Belgian regulators marks the first official measure taken against the industry by EU officials, but it comes partly as a result of other countries taking harsher stances against financial services providers.

Belgium has been active recently in combating what it sees as deceptive and potentially harmful practices in both marketing and sales of derivatives, establishing a black-list of companies that were not allowed to advertise in the country. The new law could also prove to be an important moment as other countries (namely France) debate as to how to proceed against an industry affected by unregulated brokers harming the overall reputation of the sector, potentially leading to more stringent regulation and enforcement across Europe.

Laying Down the Law

Belgium’s Financial Services and Markets Authority took the unprecedented and unexpected move of completely banning the marketing and distribution of OTC derivatives including CFDs, binary options, and foreign exchange brokers. The move, which shocked industry observers and analysts, comes after the FSMA has been implementing heavier controls and acting against specific companies it has deemed harmful to the Belgian people. The regulating body had previously produced a blacklist of unregulated brokers that were prohibited from offering any services or advertising in Belgium, featuring some of the harshest measures against the industry.

The FSMA has been vocal in its fight against unregulated brokers, issuing countless warnings about websites and companies that were operating in Belgium without proper accreditation or oversight. The new law was passed and approved by royal decree, and is set to go into effect on August 18th, 2016. The FSMA’s ban does not extend to all trading activities and brokers, but rather establishes strict criteria for who is authorized to operate in Belgium. Broadly speaking, the ban applies to any company that sells OTC derivatives to retail consumers while containing specific requirements that close several loopholes. The criteria for the ban include selling binary options, contracts whose maturity is less than an hour, and companies that offer contracts with the use of leverage which includes forex CFDs trading.

Belgian regulators also took aim at what the FSMA labels “inappropriate distribution techniques”, which include cold-calling from external call centers, fictitious gifts and bonuses, inappropriate forms of payment, and other aggressive and allegedly deceptive marketing practices. The binary options industry’s advertising practices have been one of the most heavily criticized aspects of the business, with unregulated companies regularly singled out for strategies many believe are purposefully obtuse and unclear.

Looking Ahead

While the new law is one of the most stringent in Europe, going one step further than France’s current motion to similarly ban OTC brokers, the real impact on the industry is still unclear. While the regulations will inevitably harm regulated brokers who are attempting to work in Belgium, the real targets of the laws—unregulated financial services providers—could still simply ignore regulations and continue their practices inside of Belgium. The new laws still do not feature an enforcement framework for dealing with violators effectively, meaning that without real tools for dealing with rule-breakers, the decree will mostly affect those operating within the legal framework of the EU. On the whole, however, it could mark the beginning of a contentious confrontation between European regulators and unregulated derivatives brokers.

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Japan’s GDP Woes Echoed by USDJPY Anxiety

After the fanfare that followed the biggest fiscal stimulus announcement in the history of Japan, the USDJPY pair has gradually found itself back on retreat as market participants remain unconvinced of a potential turnaround. Ambitious inflation targets and hopes for stronger growth have been dashed by a continued decline in Japanese fundamentals, further reducing hoping that the economy will be able to avoid another round of deflation and sluggish growth. Now that US fundamentals are pointing towards weaker consumption and lacking momentum higher in inflation, the stage is set for additional delays to any rate hike time line for the Federal Reserve, increasing the pressure weighing down the USDJPY pair. With no near-term turnaround anticipated for Japan and US rate hikes remaining elusive, the catalyst for any upward reversal and momentum in USDJPY is likely to remain absent over the medium-term.

Deepening GDP Slide

Looking at Japan, the unveiling of bigger and bolder fiscal stimulus measures was met with limited optimism from financial markets as the Yen continued to strengthen, much to the disappointment of Japanese officials. The more subdued expansion of quantitative easing from the Central Bank that accompanied the fiscal stimulus announcement was further evidence that the economy faces serious headwinds. Preliminary GDP growth figures released early during the Monday reopening session underlined the difficulties facing policymakers. Second quarter GDP flat-lined at 0.00%, printing below expectations of 0.20% while the annualized pace of growth fell from 2.00% to just 0.20% on expectations of a 0.70% increase. Furthermore, inflation remains a real concern, with annualized consumer prices trending below 0.00% for the last four months straight, underscoring the deflationary risks which may hurt consumption.

Alongside the Japanese economy muddling through a challenging period amid the persistent internal and external headwinds are the fundamental concerns surrounding the US economy. Although employment and job creation remains relatively strong on a headline basis, concerns about labor force participation and inflation returning to the Federal Reserve’s longer-term target continue to delay any progress towards interest rate normalization. As a result, the Federal Reserve’s stated “data dependency” before it makes any monetary policy adjustments means that economic data leading up to the new few FOMC will be carefully scrutinized. Should economic data remain mixed and show no clear signs of the direction of the US economy, the dollar may remain under pressure near-term until more clarity comes to the outlook. As a result, despite the epic fiscal and monetary stimulus measures undertaken in Japan, there remain few catalysts to drive the USDJPY pair higher.

Technically speaking

Looking at the USDJPY pair a number of factors become evident, namely that the bearish bias in the pair remains intact and unlikely to reverse near-term. Upon closer inspection of the pair, the continuation of a channel formation that has been in place for nearly 6-months adds to the downward bias in USDJPY. Ideally, bearish positions established at the upper channel line should target the lower channel line for an exit. At the moment, with the pair trading in the middle of the range, initiating positions is not necessarily suggested due to the worsening reward conditions while risks remain relatively constant. In the event of a candlestick close above the upper channel line, it could signify a potential upside breakout in the pair that leads towards a reversal higher.

Aside from the equidistant channel formation which is defining the USDJPY pair’s gradual trend lower, the moving averages are also acting as further confirmation of the bias to the downside. Both the 50-day and 200-day moving averages are trending lower above the price action, serving as resistance against any surge to the upside. However, should the 50-DMA be broken to the upside, the upper channel line remains in the way of any prolonged rally in the pair. Additionally, the emergence of a head & shoulders bearish formation on a shorter-term basis means that any move below support at 100.75 could pave the way for a breakout towards 100.00. Furthermore, any significant close below this key level pushes USDJPY towards the Brexit lows of 98.79.

Going Forward

The week ahead will give several important indicators hinting towards the future of policy. First, data pertaining to inflation which is set to be released by the US along with the minutes from the latest FOMC Meeting held back in July should give further clues as to the pace of any prospective rate hikes over the coming months. Should the data be stronger and more hawkish, the dollar could benefit, pushing USDJPY higher. However, Japanese trade data might highlight a continued contraction in exports, a factor that might cause further declines in the USDJPY pair. Without a significant improvement in either country’s respective economy or a fundamental catalyst, a near-term rally in USDJPY will likely prove elusive.

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New Zealand Dollar Setting Up For A Retreat

Despite intense verbal jawboning and a rate cut from the Reserve Bank of New Zealand, the Kiwi dollar remains mostly unchanged against the US dollar, adding to officials’ wariness of the strength in the NZDUSD pair. Although the RBNZ is expected to cut rates even further down the road in an effort to accommodate the economy amid falling inflation and expectations of a prolonged deceleration in GDP growth, the New Zealand dollar has largely ignored these developments. Pursuant to the point, the immediate reaction to the interest rate decision was strength, with NZDUSD rising to 1-year high after the announcement before retreating modestly in the hours that followed. With considerable uncertainty surrounding the outlook for US policy, the NZDUSD pair could find itself strengthening until the outlook becomes clearer from the next monetary policy decision.

Global Deflationary Forces Hit New Zealand

In keeping with the trend of monetary policy among advanced economies, New Zealand’s Central Bank reduced interest rates by 25 basis points in their latest decision, cutting the benchmark to 2.00%. Although marking the highest rates in the developing world, some market participants had speculated that the Central Bank would opt to drop rates by 0.50% to 1.75% in an effort to be more aggressive in the fight against disinflation and deflation. While New Zealand has not seen consumer prices trend into deflationary territory, disinflation remains a concern, with the latest headline consumer prices reading showing growth of a meager 0.40% through the end of June compared to a year ago. Now that energy prices are once more on the retreat, third quarter inflation might follow suit, trending back towards the 0.10% reported for the fourth quarter of 2015.

One of the biggest headwinds facing New Zealand remains the elevated local currency. According to RBNZ Governor Graeme Wheeler, “the high exchange rate is adding further pressure to the export and import-competing sectors and, together with low global inflation, is causing negative inflation in the tradables sector.” The relative strength of the currency versus a basket of peers, is creating problems not just from an inflationary standpoint, but also growth. As a result, speculation is high that the RBNZ will ease rates by another 25 basis points during the next policy decision to reverse recent appreciation. However, near-term, much of the problem facing New Zealand lies with US, after a recent wave of negative data points hurt the US dollar and rate normalization prospects.

With the Federal Reserve striking a data dependent tone, mixed economic fundamentals do not bode well for any near-term rate hikes. While recent jobs data raised speculation that a rate hike would be possible before the end of the year, disappointing productivity numbers swiftly caused the likelihood of a rate hike to reverse back downward. Furthermore, should the most recent data be echoed by a prolonged period of weak figures, the US dollar may continue to give ground versus peers as speculation surrounding higher interest rates fades, helping NZDUSD appreciate and hurting efforts to reduce the Kiwi dollar’s strength. Should conditions change, helping to boost the dollar, the RBNZ may be relieved of its pressure to act on rates to a degree, however, further accommodation may have to be forthcoming to help stabilize growth.

Technically Speaking

After hitting new one-year highs, NZDUSD has seen momentum reverse modestly, with the pair retracing gains reached following the interest rate decision. The retreat may prove short-lived, especially considering the ongoing bullish bias of several technical indicators. For one, the moving averages trending higher below the price action are acting as support against any sustained reversal. Furthermore, the 200-day moving average coincides with the lower channel line of a bullish equidistant channel formation. With the channel trending higher, ideal bullish positions established near the lower channel line should target the upper channel line. However, should the 200-day moving average be broken to the downside, it could be a strong indication of a reversal lower in the NZDUSD pair, further confirmed by a channel-based breakout. A candlestick close below the lower channel line would be a strong indication that a breakout lower is underway.

Looking Ahead

The key events that lie ahead that could impact the recent bout of strength in the NZDUSD pair include the upcoming consumer data from the United States. Friday’s retail sales figures combined are currently forecast to see growth retreat with consumer sentiment numbers expected to stay stable, factors which may hurt any prospect of a US dollar recovery near-term. The following week will see inflation data from the US followed by producer price figures from New Zealand. Any reported pickup in inflation will benefit the local currency. However, absent any changes or further rate cuts from the RBNZ, a quick correction in NZDUSD could precede a longer-term bullish uptrend.

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US Productivity Slump Contradicts Government Cheerleading

US non-farm productivity fell for the third straight time during the second quarter of 2016, throwing a wrench into the optimistic economic outlook being touted following July’s labor report. US workers’ output defied expectations of an increase and contracted once more, despite a rise in working hours. The productivity figures point toward a more fundamental problem with the supply side of the US economy, including the lowest labor force participation rates in years, as well as rising labor costs that have thus far dampened interest in business investment.

The numbers muddle the economic outlook for the US Federal Reserve, which is considering an interest rate increase before the year is over, and closely watches US labor force statistics. The probability of an interest rate hike spiked last Friday after the labor report blew past forecasts, and kept increasing until Wednesday, following the disappointing productivity readings. Now, analysts are predicting the Fed will be more hesitant to make a move that could severely backfire given the state of the US economy.

Productivity in Decline

The US economy continues to be plagued by decreasing productivity, according to figures reported by the Bureau for Labor Statistics. For the second quarter of 2016, productivity in the non-farm sector of the economy fell by an annual rate -0.50%, well below consensus estimates of a 0.40% expansion. The shocking readings mark the third time in as many quarters that the indicator has trended negative, marking the longest such streak since 1979. More concerning is that labor costs have been concurrently on the rise. In the three months ending in June, unit labor costs increased by 2.00% due to a 1.50% expansion in hourly compensation combined with the decline in productivity.

The trend is well below the growth rate from 2007 to 2015, itself well below the previous eight years’ data, and shows no signs of slowing down in the near-term. Most indicators for productivity have been trending downward in recent years, as hours worked continue to increase, while actual output has remained muted in most industries. The productivity lull has also had an impact on wage growth, which has remained more modest than the Fed would prefer and wider economic activity as reflected by disappointing second quarter GDP figures.

Recovery Woes

The productivity numbers also highlight a much more concerning trend the US economy is undergoing. Productivity is generally a stronger indicator of broader economic health, and decreasing rates translate to a worsening outlook in several arenas. For one, output is severely hampered, affecting the growth outlook and directly harming GDP. More importantly, decreasing productivity directly contradicts the highly optimistic labor statistics that have been used as evidence of solid gains in economic activity. While unemployment remains low, labor force participation is nearly at its lowest point in nearly 40 years as more able-bodied workers quit the workforce entirely.

The numbers are also concerning for the Fed, which has in recent weeks signaled a more hawkish tone regarding interest rate hikes in the coming months. After initially raising the benchmark rate last December, the Fed has been cautious in pushing for a second hike. The chances of further normalization in 2016 were cut significantly following the productivity report, as the figures tend to disagree with the Fed’s optimistic view of a resurgent economy. With muted growth in the first half of the year and falling productivity, it seems employment figures represent a skewed picture of the economy. On the whole, it seems unlikely the Fed will take action any time before December, and even until the second half of 2017.

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France Steps Up Fight Against Unregulated Brokers

Following its decision to ban binary options broker 24Option from operating in the country, French authorities have called for a complete ban on online advertising by derivatives brokers. The decision comes after two years that have seen research published on the state of binary options and forex exchange industries in the country, and the amount of complaints received by consumer protection organizations. Now, the French Authorite des Marches Financiers (AMF)—the country’s regulatory watchdog—has taken the move to forbid 24Option from operating in France, and is seeking wider action that could have serious repercussions even on the regulated firms operating within the country.

Local binary options brokers have formed a coalition to improve their image and represent their interests, but the new law could potentially also prevent them from offering any services in France. The proposed law also comes with a reclassification of certain companies based on the leverage they provide to customers, which some in the industry have described as draconian caps. All in all, the French motion could start off a harsher round of regulations across Europe.

Enough is Enough

France’s AMF has escalated its fight against unregulated and possibly fraudulent binary options and forex brokers offering their services to the country’s citizens. Following the results of two studies that showed an increasing number of consumer complaints regarding the industry, as well as fraudulent behavior by several companies regulated by foreign countries, namely Cyprus, the watchdog has called for a ban on online advertising for the whole industry, as well as the tightening of regulatory thresholds to levels some have described as “draconian”.

The first study, published originally in 2014, found that 89.00% of consumers had reported losing on average €11,000 with over 13,000 customers experiencing aggregate losses of approximately €175 million. The original report yielded few real reforms and unregulated companies continued to operate freely in the country. The second study, published in 2015, had French regulators posing as customers at nine firms—eight of them regulated by CySEC—and depositing random amounts of funds. The participants were only able to recover their money from two brokers. Following the publishing of both reports, the AMF began an aggressive push against unregulated brokers in the country, creating a black list of known fraudulent companies, and pushing for tougher regulations on the industry as a whole.

The watchdog made waves earlier in July by announcing a ban on 24Option, one of the largest brokers in the world, over noncompliance with regulations, and ordered it to immediately stop offering services to French customers. Shortly thereafter, the AMF managed to push a proposal on a complete ban on online advertising for any binary options and forex companies. The new law prevents certain businesses from running any form of advertisements depending on their product offerings, namely derivatives, and limits the amount of leverage, or margin, brokerages can offer clients to 5:1.

Industry Impact

The proposed law could potentially have major repercussions for the derivatives industry in France. For some companies, the regulatory restrictions could be too much to continue operating in the country and would force them to leave altogether. Others, which do work inside the country’s regulatory framework, have expressed concerns that they could be unfairly bundled in with unregulated brokers. A group of brokerage companies with bases in the country have formed a coalition in order to better represent the legitimate industry in the country. On the whole, the law could potentially backfire, as implementing restrictions that are too harsh could in turn lead to a mass exodus of financial companies from France.

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Oil Losses Set the Stage for Further Dollar Rally Versus the Loonie

Although the US dollar has been under tremendous pressure since a disappointing GDP announcement, one area the currency has held onto gains is versus the Canadian dollar which remains susceptible to further losses from falling oil prices. Following a notable retreat in the USDCAD pair since the outset of 2016, the reemergence of a bear market in oil threatens to reverse the medium-term downtrend in the pair. This phenomenon is setting the stage for a massive US dollar rally, especially if US fundamentals experience a pickup over the coming weeks, starting with unemployment figures due on Friday from the US Bureau of Labor Statistics. Any improvement in the US outlook combined with sustained losses in crude oil prices is likely to see the Canadian dollar remain under pressure for the foreseeable future.

Oil and Interest Rates

The two biggest determinants of direction for the USDCAD pair over the medium-term are developments in oil prices and the anticipated time line for any interest rate normalization in the United States. In relation to oil, although wildfires shuttered a significant amount of Canadian production early in the summer, reducing output by approximately 1.5 million barrels per day and helping oil prices reenter a bull market, the revival of output has proven bearish for prices. The fragile equilibrium that was keeping prices near the $50.00 per barrel level, was broken near the end of June as the output disruptions concluded, paving the way for resurgent production in the stricken regions. Now that heightened seasonal oil demand is on the verge of disappearing, the stage is set for a deeper decline in oil prices.

For Canada, another drop in oil prices or a prolonged period of low prices will undoubtedly hurt economic activity. Already, the slowdown in the energy patch has seen the nation’s GDP growth tumble to the slowest pace in years, creating concerns for policymakers. While the Bank of Canada could potentially lower rates further from current levels, it could be a strategy that creates problems in other areas, namely real estate and inflation. Rapid price appreciation in Toronto and Vancouver real estate prices have raised the risk of a speculative bubble forming, with the problem conceivably magnified by any further reduction in interest rates. Additionally, with inflation not far from the Bank of Canada’s 2.00% target, any rate cut would probably spur further depreciation in the Canadian dollar while sending consumer prices soaring.

Although no imminent action is expected on rates from the Bank of Canada, markets are carefully watching US data for signs of potential adjustments from the US Federal Reserve. While rate hike speculation had a serious setback following the preliminary second quarter GDP report from the United States, should inflation and employment metrics continue to improve, the Central Bank may have no choice but to act. Financial markets are not currently pricing in the possibility of a near-term rate hike in the United States, however, better data could reverse the recent slide in the US dollar. If data shows improvement, specifically in consumer prices and job creation, anticipation will spur additional gains in the US dollar, pushing the USDCAD pair back to the upside.

Technically Speaking

While the Canadian dollar’s relationship to oil prices is fairly easy to spot considering the reliance of the Canadian economy on energy exports, it remains just one factor amid the myriad of technical indicators that are in support of another rally in USDCAD. The emergence of a bullish equidistant channel trending higher on a shorter term basis adds credence to the idea of a USDCAD reversal. Ideally, investors will exploit the pattern by establish bullish positions close to the lower channel line targeting the higher line, however, in order for the rally to persist, the pair must overcome the 200-day moving average. The longer-term moving average is currently trending above the price action, coinciding with the upper channel line and serving as resistance against any prolonged rally in USDCAD. If overcome, it sets the stage for a test of resistance at 1.3260.

Going Forward

The coming sessions will be dominated by labor data due from both the United States and Canada. Following the better than expected ADP nonfarm employment number, the US dollar has already begun to reverse. However, Friday’s nonfarm payroll data carries significantly more weight when it comes to spurring US dollar momentum. Canadian labor figures set to be released at the same time are forecast to show the unemployment climbing from 6.80% to 6.90%. Should this be the case, the Loonie may cede more ground against the US dollar. Additionally, even though oil prices might be ready for an upside pullback after recent losses, conditions appear optimal for a prolonged USDCAD rally should oil prices remain under pressure.

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