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Short-covering is a term used in financial markets, including forex, to describe a situation in which traders who have sold an asset short buy it back in order to close out their position. When a trader sells an asset short, they are essentially betting that its price will fall. Short-covering occurs when the opposite happens and the asset’s price rises. In this case, traders may choose to buy back the asset at a higher price than they sold it for in order to limit their losses or take profits. This buying pressure can further drive up the price of the asset, potentially creating a feedback loop that causes a sharp price increase.

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