• A fair value gap refers to a situation where there is a difference between the fair value of a currency pair and its current market price. This concept is similar to fair value discrepancies in other financial markets, where the trading price of an asset diverges from its estimated intrinsic value. • When traders and investors perceive that the current exchange rate does not accurately reflect these underlying fundamentals, they might consider the currency pair to be either overvalued or undervalued, creating a fair value gap. • For example, if the fair value calculations based on economic fundamentals suggest that EUR/USD should be trading at 1.2000, but the current market price is 1.1800, there is a fair value gap indicating that the euro is undervalued against the dollar according to the model or analysis used.