GBP/USD is under pressure in Tokyo and homes in on key pivot breakout

• GBP/USD bears are lining up for a push lower, but bulls are moving in on hourly resistance. 
• The hourly M-formaiton neckline needs to hold at this juncture.

GBP/USD is trading flat on the day, so far, but is close to the New York lows and trading on the backfoot. The US dollar has been under demand for the last few sessions on political turmoil in Europe and ahead of the European Central Bank while the pound has been unable to fully relish the surprise outcome of UK inflation. 

The UK's inflation data surprised to the upside for June. Headline inflation rose to 9.4% YoY (consensus: 9.3%) from 9.1% in May, with core inflation easing slightly to 5.8% from 5.9%. The consensus is that inflation will continue rising over the coming months. This leaves a hawkish stance over the Bank of England that will have to raise rates aggressively, despite the elevated risk of recession. The markets are pricing in a move of 50bp to 1.75% in August, followed by 25bp hikes in subsequent meetings, with the policy rate peaking at 2.5% by December.

As for the US dollar, the greenback was higher and tested into the 107 area as measured by the DXY index. The currency's gains, however, were capped as traders were hesitant to drive big moves ahead of a crucial European Central Bank policy decision on Thursday and political upset surrounding not only the resignation of the Italian Prime Minister, Mario Draghi but also due to the uncertainties surrounding the reopening of a key Russian gas pipeline.

GBP/USD daily chart

Meanwhile, the technical outlook is bearish as per the following daily chart's W-formation:

The bears have been slowly chipping away at the prior bullish rally but the price imbalance into the neckline of the formation is compelling and could attract a mitigation process in the coming sessions. 

From an hourly perspective, the price has met a 50% mean reversion of the prior bearish impulse that has a confluence with the neckline of the prior M-formation. If this continues to act as resistance, the price will be coiling up for a potential downside continuation toward the broadening formations' lower bound trendline: