We summarized the currency section of Friday's Premium Update in the following way:

"Summing up, we are likely to see further improvement in the USD Index and weakness in the Euro Index on a short-term basis. However, since the cyclical turning point was not reached just yet, we could see another move lower in the USD Index in the next few days, and a bottom close to the turning point. The bearish trend will remain in place as long as the euro remains below its short-term resistance line and the dollar stays above its short-term support line. Therefore, currently, the implications for the precious metal market are bearish, but at the same time there is a possibility that the USD Index will support a short-term upswing in PMs."

On Friday, after the update was posted, we indeed saw a decline in the USD Index and a move up in the Euro Index. In fact, the Euro Index moved once again to the 50% retracement level based on the October - November decline.

It didn't trigger a rally throughout the precious metals sector so far, but there was no breakdown either.

We read an interesting piece of information this weekend:

"Low inflation means the European Central Bank plans to keep interest rates at current low levels or may even cut them further, ECB Executive Board member Benoit Coeure said on Saturday.

With euro zone inflation running at 0.7 percent, well below its target of just under 2 percent, a raft of ECB speakers have said this week that the bank is open to taking fresh measures after a surprise rate cut to a record low of 0.25 percent earlier this month.

'We have said that in the view of the subdued outlook for inflation we expect interest rates to remain at current or lower levels for an extended period of time,' Coeure told a conference in Paris."

What does it tell us about the future of the USD Index? That it's likely to move higher even despite the continuation of the open-ended QE. The markets have had more than enough time to include the information about the QE in the price of the USD Index, so its current value takes it into account. The markets also take into account the historically low US interest rates that virtually cannot be lowered any more. However, the rates in the eurozone can still be lowered and thus there is still room for more interest-rate-driven euro weakness.

Since the EUR:USD exchange rate is the biggest part of the USD Index, the decline in the value of the euro is likely to drive the USD Index higher - in the coming weeks / months that is, not necessarily right away. The interest rate cut is a bullish factor for the precious metals sector from the long-term perspective, but it could initially be a bearish factor, as they would likely - as explained above - cause the USD Index to rally.

Meanwhile, gold and silver have basically stayed where they were on Thursday, so what we wrote in our latest Premium Update remains up-to-date.

Mining stocks moved to their Thursday low (which at the same time is the same low that miners reached in June 2013) on Friday and closed $0.03 above it. Please note that the volume on which the decline materialized on Friday was not significant, which doesn't provide us with bearish implications. The fact that the strong support was reached after a sharp decline suggests that we are quite likely to see an upward correction.

Overall, it still seems that we will see another move up before the decline continues, however, if the USD declines on Monday and gold, silver and mining stocks refuse to rally once again, we will quite likely get back on the short side of the market.

To summarize:

Trading – PR: No positions.

Long-term investments: Half position in gold, silver, platinum and mining stocks. As far as long-term mining stock selection is concerned, we suggest using our tools before making purchases: the Golden StockPicker and the Silver StockPicker

As always, we'll keep you - our subscribers - updated should our views on the market change. We will continue to send out Market Alerts on a daily basis (except when Premium Updates are posted) and we will send additional Market Alerts whenever appropriate.

As a reminder, Market Alerts are posted before or on each trading day (we usually post them before the opening bell, but we don't promise doing that each day). If there's anything urgent, we will send you an additional small alert before posting the main one.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA