In Chapter 7, a critical moment of truth emerges in which Gatsby confronts Tom and declares his feelings for Daisy and what he believes are her feelings for him. It is a critical moment because the discussion is open for Daisy to stand up for her feelings and do what is honorable. Daisy fails to do this. Equally telling is Nick's description of Daisy at such an pivotal instant:
It passed, and he began to talk excitedly to Daisy, denying everything, defending his name against accusations that had not been made. But with every word she was drawing further and further into herself, so he gave that up, and only the dead dream fought on as the afternoon slipped away, trying to touch what was no longer tangible, struggling unhappily, undespairingly, toward that lost voice across the room.
As Gatsby defends himself, Daisy cannot bring herself to do so. Defending him would require too much of honor. It would necessitate too great of a commitment. It is for this reason that "she was drawing further and further into herself." Gatsby recognizes this as a "dead dream." It is a pivotal moment in the text in which it becomes clear that Daisy could never be with Gatsby.
I think that the second part of this equation appears towards the end of the chapter. Upon the conclusion of an awful day, filled with an emotionally brutal afternoon and an even sadder evening with Myrtle's death, Nick comes across Daisy and Tom. They are sitting at a kitchen table eating cold chicken and drinking beer. It has become clear that she has chosen Tom over Gatsby. Evidence of this is in the way she nods approvingly at what Tom says, as well as the general state in which Daisy has retreated into a world of wealth, protection, and privilege as opposed to the love and authenticity of Gatsby. Nick observes this in seeing Daisy and Tom together: "They weren’t happy, and neither of them had touched the chicken or the ale — and yet they weren’t unhappy either. There was an unmistakable air of natural intimacy about the picture, and anybody would have said that they were conspiring together." The idea of Daisy and Tom "conspiring together" makes clear that the emotional "holocaust was complete" in that she has chosen Tom over Gatsby.