GBP/USD plummeted overnight – from a high of 1.5692, it crashed through support at 1.5583 and is now around 1.5440 in Asian trade.
As the market was still relatively quiet news-wise, the major driving factors of this price action were likely year-end related trading, triggered stops, and risk-off market sentiment due to ongoing European debt issues. A rise in overnight ECB deposits, indicating interbank stress, plus rumours about sovereign downgrades, fuelled a flight to safety, and the US dollar rose across the board. Cable remains within the 1.5414 to1.5778 range it has held since its November 25 low, with the December 14 low of 1.5414 providing crucial support.
A break of this level may open the way to its earlier lows of 1.5328 (September 22) and 1.5272 (October 6). Traders will be looking towards the US jobless claims and pending home sales figures tonight, as well as the next round of Italian debt actions, though it would take very good news to curb risk aversion in holiday trading.