TRADERS EXPECT DOLLAR TO HOLD IN THIN RANGE

TRADERS EXPECT DOLLAR TO HOLD IN THIN RANGE

The dollar will trade in a narrow range in the near future, according to currency traders and economists.

Last week, the dollar rebounded after surviving a major downside test in the wake of February's disappointing U.S. trade deficit of $13.8 billion.Although traders pushed the dollar down for two days after the trade report, they stopped short of testing central bank resolve to defend the

dollar within ranges thought to be agreed to by the Group of Seven nations.

The dollar bottomed out at 1.6550 deutsche marks, then rebounded mildly over the course of the week, and finally finished at 1.6730.

The market is extremely leery of the central banks, said Robert Hatcher, vice president of foreign exchange for Barclays Bank in New York. For that reason, they want some confirmation that last month's trade deficit was not a fluke, but was an indication that the trade deficit is not improving.

In addition to fear of central bank intervention, the dollar was helped by technical support at 1.6550 deutsche marks, renewed tensions in the Middle East, and the firmer tone of U.S. interest rates.

Indeed, the inability of the dollar to break through down-side support levels may give the dollar a slight upside bias over the near term.

If you can't take the dollar lower, then the only way you're going to make money is to take it higher. And that's the kind of reaction we're seeing now, Mr. Hatcher said.

But while the dollar temporarily may have a slight upside bias, most traders remain bearish over the dollar's longer-term prospects.

As has been the case for some time, the U.S. trade deficit will remain the single most important factor in determing the dollar's value.

Prior to February's disappointing number, the U.S. trade deficit had been better-than-expected for three consecutive months, a development that provided support to the dollar.

In the wake of the poor February deficit report, the March defict figure - to be announced May 19 - becomes all-the-more important. A better-than- expected number would indicate that February's figure was an aberration and that the U.S. trade account is improving. A poor number would signal that the

dollar needs to weaken further in order to reduce the U.S. trade deficit.

If we get another disappointing trade number next month this thing could come apart at the seams, said Dana Johnson, chief money market economist at the First National Bank of Chicago. If it turns out that February was an aberration, then we'll be just fine.

A second consecutive bad trade number, Mr. Hatcher of Barclays believes, will spur the G-7 nations to lower their target ranges.

There is a general feeling that the central banks will adjust the bands if economic factors justify the adjustment, Mr. Hatcher said.

However, Earl I. Johnson, vice president of foreign exchange for Harris Bank in Chicago, estimates the March deficit will be $11 billion, a figure that he says will push the dollar up close to 1.70 deutsche marks.

March has been the third-smallest deficit of the year in the last two years, Mr. Johnson said. We usually get seasonal strength in exports in March.

Aside from the March trade deficit figure, the market may be affected by the outcome of the trade bill now before the Senate and by the April employment data due out in early May.

Enactment of the trade bill would be bearish for the dollar, although it's not nearly as frightening to traders as it was before most of the onerous protectionist provisions were removed.