You probably went fishy a bit too soon, like I said I don't know salty as well as fresh, but doing fishless cycle you still need to do water changes whilst the bacteria develops, just don't clean the filter media or ornaments at all.
Aquarium water is a massive balance to start, 1 day too soon and you could loose it.
I don't know enough to say wether a damsel is suitable/hard enough for cycling, but it may have been dying from the start. It's death may be the only cause of the ammonia, your cycle may be fine.
To answer questions here we need to make a certain ammount of assumptions. So do your water change then check all your levels again. Including nitrate (check it before too if you havnt started water change yet). Post results, and it may be that you just need to cross your fingers or replace fish.
If you havnt already, check the forum for cycling help to see if damsels are hard enough, or what fish are good for cycling.