EURJPY a good barometer of fear heading onto French election

How big of a risk is the French election for the markets? 

The market risk is big and I cannot quantify it. It can be similar to 2011 with the risk of disintegration of Eurozone and the European Union will increase. Additionally, France - UK - US: a new alliance? It could happen.

Which is the best tool to track French election market risk? French bonds? CAC-40? Polls? 

In order to track the French election market risk I look at the spread differential between French and German bonds (wider spread = more risk). Also, one could use the barometer of fear - the EUR/JPY (rate goes down = more risk) currency pair.

Polls are forecasting a very tight race among the main four candidates in Sunday’s first round: how low could EURUSD go in case of a Le Pen vs Mélenchon showdown in the second round? 

It all depends upon how large the advantage of Le Pen would be. If she wins in the first around by an advantage of 5%, the move can be large and the EUR/USD could be targeting 1.03 and even levels below that. If the numbers will be tight, then the movement should not be large as most if it has already been discounted. In case of Melenchon's advantage after the first round, the Euro could shoot towards 1.09.

And how high could the EURUSD rally if Fillon vs Macron was the outcome of the first round? 

The main risk factor (Le Pen) will be out of the game so the EUR/USD goes up. Target? 1.09 at first, possible 1.12.

Could the French election have a GBP-Brexit-type effect on the EUR? 

It sure can. If Le Pen wins the election, it will put the UK in a good position - another big player and another trading partner. They could join forces against Germany.

Should traders prepare for important gaps in the Euro on the post-election Monday openings? 

Oh, yes. How important this upcoming weekend is? Option traders fear the French election outcome more than Brexit. Of course, everybody fears Le Pen. If this happens, the gaps will be large, both on the EUR/USD and the EUR/JPY (even larger)

Where would capital fly in case of a EUR meltdown if there was a Frexit? German bonds? USD? Other currencies? 

There are a couple of possibilities that I take into account and those are: JPY and CHF (currencies), US and JPY bonds, gold and silver (commodities). Obviously, volatility will be high but those markets that I have mentioned should experience the largest gains.

Is the European Union "two-speeds" idea good for the EUR in the long-term? 

To be honest, it is a logical idea. The European Union will find it difficult to grow having such a large economic discrepancies among countries. The "two-speeds" idea could be a solution. Of course, a very bad solution for smaller countries. Its introduction (of the two-speeds concept) would cause larger delamination, declining solidarity and integrity. All that would cause anger of people and it would not be good for the EUR.