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00:00GREAT TO SEE YOU THIS MORNING. I PULLED UP THE LATEST POLLING, THE FRENCH ELECTION TRACKER ON THE BLOOMBERG. THIS SHOWS THE PAN AND MACRON OUT FRONT AS THEY HAVE BEEN DURING THE CAMPAIGN. YOU THINK THE MARKETS ARE NOT NERVOUS ENOUGH ABOUT THIS ELECTION, WHY SO? >> WHEN WE LOOK AT THE POLLS THEY HAVE CONVERGED AND WE ARE NOT FAR FROM THE MARGIN OF ERROR FOR THE CANDIDATES. THE SHARE OF UNDECIDED VOTERS IS VERY HIGH. ANYTHING CAN HAPPEN AFTER THE FIFTH ROUND. WHEN WE LOOK AT WHAT THE FX MARKET IS PRICING, THE EURO-DOLLAR IS AT THE LOWEST LEVEL SINCE 2012. THIS REFLECTS SHEDDING OF LONG POSITIONS. WHEN WE LOOK AT THE FLOWS THIS YEAR, THEY ARE LONG EURO-DOLLAR AND EURO-DOLLAR HAS GONE NOWHERE THIS YEAR BECAUSE OFFICIALS OF THE CENTRAL BANK AND CORPORATE HAVE BEEN SELLING THE EURO-DOLLAR. WHEN YOU LOOK AT THE OVERALL EURO-DOLLAR POSITION IT DOES NOT [INAUDIBLE] INVESTORS ARE LONG EURO-DOLLAR DESPITE THE RISK HEAD OF THE FRENCH ELECTIONS. MATT: I HAVE THAT RISK REVERSAL CHART, GUY JOHNSON WAS USING IT EARLIER. ANY OF OUR BLOOMBERG CLIENTS CAN GET INTO THE BTV LIBRARY AND GET THIS CHART. THE LOWEST SINCE 2011. WHERE DO YOU THINK THIS CHART SHOULD BE IF YOU WANT TO SHOW SOME KIND OF RISK AVERSION IN THESE MARKETS? GUEST: THIS SPECIFIC CHART IS WHERE IT SHOULD BE BUT TO A LARGE EXTENT IT REFLECTS HEDGING OF EQUITY POSITIONS AS WELL. WHEN WE LOOK AT POSITIONS INTO EQUITY MARKETS SO FAR THIS YEAR, THE STRONGEST FLOW HAS BEEN IN THE EUROZONE. THE MARKET BASICALLY DOES NOT EXPECT A NEGATIVE OUTCOME FROM THE FRENCH ELECTION. IT MIGHT BE RIGHT BUT THE RISKS ARE VERY HIGH. WE BELIEVE THEY ARE ASYMMETRIC. WE GET A POSITIVE SCENARIO OF MACRON WINNING AND FRANCE, THE EURO-DOLLAR CAN GO ONE TENANT MOST. THIS WOULD BE CONSISTENT WITH THE DATA. IT WOULD GET -- THE EURO-DOLLAR CAN GO LOWER. THE EURO-DOLLAR CAN GO AS LOW AS .90 WHICH IS CONSISTENT WITH THE MOVE WE SAW AFTER THE BREXIT REFERENDUM. ANNA: AFTER -- AS WE BUILD UP TO THE FIRST ROUND WHERE DO WE GET THESE KINDS OF MOVES COMING AND IF THEY ARE GOING TO HAPPEN? IT DEPENDS WHETHER THE PEN MAKES IT INTO THE SECOND ROUND. DO YOU THINK IF SHE MAKES IT AN, WE SEE SOME OF THIS EXTREME, SHE PROBABLY WILL MAKE IT IN SO WHEN DO WE GET THAT EXTREME OF, WE HAVE TO WAIT UNTIL AFTER THE SECOND ROUND RESULTS OR DO WE GET SOMETHING BEFORE THEN? >> IT COULD BE BETWEEN THE TWO ROUNDS. IF THE PEN MAKES IT TO THE SECOND ROUND AND IF SHE DOES IN THE FIRST ROUND, [INAUDIBLE] OR IF MELENCHON MAKES IT TO THE SECOND ROUND, ALTHOUGH HE IS NOT DIRECTLY AGAINST THE EURO ZONE, MANY OF HIS POLICIES ARE INCONSISTENT WITH EUROZONE MEMBERSHIP. ANNA: THEY WERE ON THE OPPOSITE SIDE OF THINGS FROM YOU AND THEY WERE RELAXED ABOUT THE OUTCOME AND THEY WERE SAYING THAT LE PEN WOULD HAVE TO GET SOMETHING IN THE 40% RANGE IN THE FIRST ROUND FOR HIM TO BE WORRIED ABOUT HER PROSPECTS IN THE SECOND ROUND. WHAT ARE THE WORRYING NUMBERS FOR YOU? GUEST: IT DEPENDS. THE PEN IS WELL BELOW FOR THE SECOND ROUND. IF SHE DOES BETTER IN THE FIRST ROUND, IT DEPENDS HOW MUCH BETTER. HER CHANCES FOR THE SECOND ROUND COULD INCREASE. MACRON IS 20 PERCENTAGE POINTS

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Merrill Lynch's Vamvakidis on French Election Risk

Thanos Vamvakidis, head of G10 FX Strategy at Merrill Lynch, discusses the French election and how the outcome could impact markets. He speaks on "Bloomberg Daybreak: Europe." (Source: Bloomberg)

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