On Friday, the U.S. Dollar index (DXY pronounced “Dixie”) surged to 89.467 and pulled back to close at 89.36, a 7-year high, as the U.S. nonfarm payrolls for November came in well above expectations. By next year, the DXY will continue moving higher as the U.S. Federal Reserve begins to normalize the monetary policy, meaning raising the benchmark interest rate. 

The DXY will probably not move up in an exponential trajectory or a “moon shot”. Here are the possible technical head resistances for DXY: 90.38 (61.8% Fibonacci Retracement), 92.30, 96.27 (50% Fibonacci Retracement) and 98. Just a reminder, the US Dollar index is a weighted geometric index of the value of the U.S. dollar relative to a basket of six major currencies: 

Euro (EUR), 57.6% weight, Japanese yen (JPY) 13.6% weight, Pound sterling (GBP), 11.9% weight, Canadian dollar (CAD), 9.1% weight, Swedish krona (SEK), 4.2% weight and Swiss franc (CHF) 3.6% weight.

The euro-dollar exchange rate dipped below the 1.23 dollar per euro level. The exchange rate probably is heading to retest the 1.18-1.20 dollar per euro support levels. The Eurozone economy could have a rocky start next year as Germany, France and Italy saw the November manufacturing PMI dip below 50, meaning manufacturing activity in three of the Eurozone's largest economies is heading south. 

If the European Central Bank continues kicking the can down the road beyond Q1 2015, things could get worse in the Eurozone and the euro-dollar exchange rate could break the 1.18-1.20 dollar per euro support levels.

The dollar-yen exchange rate broke the 120 yen per dollar resistance and prints at 121.60 yen per dollar, another multi year low for the yen. It is highly likely that the dollar-yen exchange rate will break the 125 yen per dollar resistance, as Moody's Investors Service just downgraded Japan's credit rating. Standard & Poors may be ready to do the same thing, as they don't believe that Prime Minister Shinzo Abe has a detailed fiscal plan to fix the Japanese economy. We could see a “crash” of the Japanese yen!

The dollar-baht exchange rate broke the 33 baht per dollar near-term resistance as the Thai baht took a hit from the strong dollar. The dollar-baht exchange rate prints at 33.03 baht per dollar and the next stop could be at 36 baht per dollar. A rate cut by the BOT at this point could be seen as an invitation to currency traders and bond vigilantes to short the Thai baht and Thai government bonds. Let's hope that I’m wrong.

All commodity currencies, including the Australian dollar, Canadian dollar, New Zealand dollar, Norwegian krone, South African rand, Brazilian real, the Chilean peso and Russian ruble, will get hit. Just a reminder, currencies of countries which heavily export certain raw materials for income are referred to as commodity currencies. Actually, the Thai baht might also fall into the commodity currency category.