Does Currency Smirk Predict Foreign Exchange Return?

This paper finds the predictive power of currency smirk to forecast foreign exchange (FX) return to be convincing. Although the steeper currency smirk appears in the middle of the trading day, the conclusive currency smirks' predictability lasts over the next trading day, as the FX market is highly adept at incorporating the information embedded in the currency smirk. The implication of these fmdings is that the currency smirk is distinctive for forecasting very short-term FX fluctuations, and that day- or overnight FX traders can apply its uniqueness to profit from quick price swings in the 24-hour globalFX market.