Former Manchester United striker Febian Brandy clinched Walsall's first win in 17 league and cup maches with a 62nd-minute strike to lift his side above Colchester in the table.
Dunne said: "The players are down at the moment because they don't like losing, but after a couple of days with their families at Christmas, hopefully that will kick-start them again.
"It's a long time since we were still in a game at half-time, we have been chasing games, and if Jabo's shot had hit the underside of the bar and gone in...
"We've had two or three opportunities and hit the bar twice, but I was disappointed with the way we conceded their goal, first through losing possession near the half-way line.
"It's tight in this league. I think the top six take care of themselves and we play four of them in our next four games."
Dunne revealed that Colchester had signed Portsmouth winger Jack Compton, who would be available to play in January, and is in talks with two other players in a bid to strengthen his squad.