A "short-squeeze" is a bullish scenario where a high percentage of traders are short in a currency pair when the market begins to move against them (by rising).
Since most traders use stop-loss entry orders to limit losses or will close out positions if they move against them too much short squeezes can accelerate as stops are tripped to cover losses. Also since most of the traders are already short their selling power may be limited as the pair moves against them, further accelerating the bullish move. For example, lets say 80% of speculative traders are short the AUD/USD pair. If the pair starts moving upward on heavy bank buying then two things happen: a) traders are unable to sell further as they are already short, and b) as their stop-loss orders get tripped the pair will accelerate upward.
Also see long squeeze.