Interactive Investor

Chart of the week: latest share price forecast for Lloyds Bank

11th April 2022 14:31

John Burford from interactive investor

Higher interest rates are meant to be good news for UK-focused banks, but what does the future hold for Lloyds? After checking the charts, technical analyst John Burford gives his opinion.

Lloyds Bank recovers to move higher

The banking sector has been taking something of a hammering lately as the world watches in a mixture of amazement and horror at the carnage being exacted in the Ukraine conflict and bond markets.

US Treasuries are in the largest and longest slump seen for many years with the benchmark 10-years yielding 2.8% - a new high. Only three months ago, the yield was 1.2% and lower.

UK gilts have also fallen sharply with mortgage rates moving higher. Normally, this would be of benefit to the banking sector as the higher rates imply that gross margins improve. When rates were super low, margins were being squeezed.

The big question now is this: will bond yields move even higher in the short to medium term and will housing demand tail off, with mortgage approvals set to fall with negative implications for banking profits?

Turning to Lloyds Banking Group (LSE:LLOY) – our most domestic-facing high street bank – the shares appear to be at a crossroads and, with sentiment largely bearish, they appear poised to move higher.

About a month ago, the shares fell hard to the 38p low on fears the Ukraine conflict would hurt the banks, as Russia sanctions were being imposed and retaliation was seen as likely, with visions of a nuclear World War III widespread.

But those worries were overblown (as they usually are when a war suddenly starts) and the shares are recovering.

Past performance is not a guide to future performance.

Note that the rally off the corona crash lows in 2000 (heralded by the large momentum divergence as shown) moved up to fill the important gap formed as the corona crash was getting under way. The shares then fell back, as is usual when a gap is filled.

And here is the latest action on the daily chart:

Past performance is not a guide to future performance.

First, note the excellent tramlines with very accurate touch points – especially the last one on the lower line. That makes it a very secure line of support. And drawing the parallel line off the three highest points and extending it lower touches the latest rally in two more places. That makes that line an excellent line of resistance.

So, any move up to that line from the current 45p to around the 48p region would set up a big test of that resistance. Of course, breaking above it would be highly significant and would point to higher prices, with first target at the old 56p high.

John Burford is a freelance contributor and not a direct employee of interactive investor.

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