GBP/USD bulls tested at critical daily support

GBP/USD is off the recent recovery highs and is at a make or break area on the daily chart.
The central banks are in focus and driving the price as well as COVID risk.

Due mainly to US dollar strength, GBP/USD is under pressure on Tuesday, down 0.33% at the time of writing after falling from a high of 1.3904 to a low of 1.3800.

The greenback has rallied to a fresh six-day high as measured against a basket of currencies in the DXY index, following data showing the highest US inflation in 13 years.

The US Labor Department said the Consumer Price Index increased 0.9% last month, the largest gain since June 2008.

Core CPI surged 4.5% on a year-on-year basis, the biggest increase since November 1991.

DXY was 0.47% higher at 92.6 at the time of writing but printed its highest since July 8 at 92.73 earlier falling just shy of the three-month high of 92.844 printed last week.

Meanwhile, as investors position for a faster pace of tightening from the Federal Reserve, domestic news from the UK's central bank, the Bank of England, weighed on the pound earlier in the day.

Sterling eased back from two-week highs after the Bank of England announced in a press conference during its Financial Stability Report (FSR) that some asset prices looked stretched.

Elsewhere, investors are worried that a surge in COVID-19 Delta variant cases will be problematic for asset prices while the government plans to ease COVID-10 restrictions next week.

This is likely to keep the pound on edge for the coming weeks leading into the grand finale for the US dollar which will be the next Federal Open Market Committee meetings during August.

GBP/USD technical analysis

The price is at a crossroads and some further price action needs to occur for a bias to reveal itself from a daily perspective.

From a 50% mean reversion, the price could well stabilise and lead to an upside continuation.

That being said, the price has broken the prior structure and spiked below the 50% mark as follows:

The price has broken structure and depending on the close today, the prospects will be bearish if the price cannot hold in the support area.

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