The Lloyds share price has had a good run but now poses a problem for investors as it resides around the key resistance level of 50p.
Lloyds shares have consistently failed in the 50p region over the past two years, with only a brief foray to 54p back in early 2022.
The 50p level for Lloyds is reminiscent of the Lord of the Rings scene in which the grey wizard Gandalf fights off a fire-breathing monster declaring ‘You Shall Not Pass’.
Yet, the stock has broken through the 50p mark and trades at the dizzy heights of 51.6p. From a technical perspective, the bulls will want to see a retest of the psychological 50p mark before concluding Lloyds shares can continue to trend higher.
Lloyds is entrenched in a trading range between 40p and 50p and it’s going to take an awful lot to see it break convincingly in either direction.
The direction of Lloyds—and other UK banks—will be dictated by the wider macro environment. As both a direct facilitator and beneficiary of the UK economy, the ongoing resilience of the UK property market, inflation, and consumer strength will decide whether Lloyds will touch 60p or 40p next.
The Lloyds dividend is a huge attraction that prevents it from breaking below 40p and the lingering fears of a soft UK economy caps the Lloyds share price at 50p.
The macroeconomic picture isn’t on Lloyd’s side. Although it has navigated the cost-of-living crisis largely unscathed, its profit growth has been enhanced by the higher interest rate environment, which will end this year.
Lloyds profits won’t fall off a cliff because rates won’t go back to near zero, but lower rates will act as a significant headwind. Ultimately, it will come down to the timing of interest rate cuts and the state of the UK economy at that point.
In reality, Lloyds has become a trader’s dream, and those inclined to seek out shorting opportunities will be licking their lips at the prospect of opening a position in the 50p region.
That said, a major break above 50p and a successful retest of that level could open up the doors to 60p.
As the Bank of England reminds us, they are data-dependent. The economic data the BoE relies on for its interest rate decisions will determine Lloyds’ share price performance and must be watched closely.