More and more currency traders are turning bearish toward the dollar.

In recent weeks the dollar has been stable, reflecting in large measure two consecutive months of improvement in the U.S. trade deficit.However, signs of strength in the U.S. economy are leading some traders to hypothesize that the improvement in the trade deficit won't be sustained and, therefore, the dollar will have to fall.

Having successfully forecast the stabilization in the dollar, we see the

dollar coming off a little in response to the trade deficit still remaining large, said David Simmonds, chief economist of Midland PLC in London.

In early January when central bank intervention and a surprisingly low November trade deficit of $13.7 billion lifted the dollar, some traders forecast that the long-term dollar decline was finally over.

The improvement in the December trade deficit to $12.2 billion announced in mid-February bolstered that view. However, the dollar strengthened less on the

December trade deficit reduction than it did on the November improvement, leading some traders to question whether the market was entertaining unrealistic expectations on the rate of improvement in the U.S. trade account.

The market has gotten to the point where the trade deficit has to improve every month in order for the dollar to hold, said David Cocker, vice president of foreign exchange for Chemical Bank in London. At some point, I think the trade deficit will plateau and the dollar will fall.

Dollar bears were further encouraged by Friday's news of a surprisingly large 531,000 increase in nonfarm employment, particularly since only 20,000 of the increase occurred in the manufacturing sector.

The employment figures, which indicate a strong economy, also suggest that U.S. demand for imports will remain strong, particularly since most of the increase took place in the service sector.

It was a bad figure for the dollar in two ways, said Mr. Simmonds. Employment was up sharply, but it was not up so much in the manufacturing export sector.

Although more traders are turning bearish toward the dollar, few project a sharp fall in the near future. For the short term, most traders believe the

dollar will continue to trade in a narrow range until the March 17 report of the U.S. January trade deficit.

I think the dollar will stay in the 1.68-1.70 deutsche mark range that it's been in until March 17, said Earl I. Johnson, vice president of foreign exchange for Harris Bank in Chicago.

However, Ted Nakagawa, vice president of foreign exchange for Long-Term Credit Bank of Japan, believes the dollar could fall as low as 126 yen this week in a delayed response to the very strong U.S. employment figures.

Traders project the January U.S. trade deficit will be around $12 billion to $13 billion. However, if it's more than $13 billion, some traders say, the

dollar could drop sharply.

Although there's some question among traders about the rate of improvement in the U.S. trade deficit, most believe it will not return to the $15 billion to $17 billion levels that rocked the currency markets last year.

The decline of the dollar that we've seen over the past few months is enough to keep the trade deficit declining, said Steven Cerier, an economist with McCarthy, Crisanti, Maffei in New York. I'd be very surprised to see a deficit around the $15 billion level.

Mr. Johnson of Harris Bank believes the improvement in the U.S. trade deficit may stall in the summer months.

The best trade numbers you're going to see are probably now, Mr. Johnson said. The big deficits are always in the summer, particularly July. I think there's still a $14.5 billion to $15 billion deficit out there.

However, Mr. Johnson believes the recent improvement in the trade deficit will continue in January. He predicts a $11.5 billion to $12 billion deficit, low enough to spur a three or four pfennig rise in the dollar against the deutsche mark.