In the paper “Large Moves in the Foreign Exchange Market", the researchers show that large currency moves are not random but related to the term structure of option-implied volatility. The difference between short-term and long-term implied volatility is a good predictor of the absolute value of current moves. Given this information, investors should buy straddles when the volatility curve is inverted. Being long the straddle allows for gains in either direction.
The implied volatility inversion provides useful information that can be exploited through straddles. It makes sense that high short-term volatility will likely see greater-than-average moves.
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