Dollar falls broadly, plunges nearly 2 yen to 109.50 yen

Resnick is among those traders and analysts who would have forecast a mild rise for the dollar in 2008. However, several factors that played a role in the dollar's decline in 2007, picked up in 2008 where they have left off.

"Today's jump in the price of oil to over $100 [it's back over $98 by 1:00 p.m.] really weighed on the markets. It's hard for the dollar to rise when oil is rising," Resnick said. Oil causes an outflow of dollars from the U.S. due to the high amount of oil the United States imports/buys from foreign oil suppliers. That outflow also boosts the currencies of oil producing countries such as Canada and the United Kingdom.

"The ISM manufacturing statistic also hit the markets pretty hard. It's not that it was that dramatic a number, it's just that a December [2007] reading below 50 sort of confirms what everyone suspected, which is that the U.S. economy is barely growing and that manufacturing is likely to be soft," Resnick said. "It nearly makes another rate cut by the Fed at its next meeting a done deal, and that's bearish for the dollar."

Possible BOJ intervention?

Resnick added that the dollar is nearing a level -- 109 yen -- at which he believes the Bank of Japan may intervene in the market to boost the dollar. A strengthening yen versus the dollar makes Japanese goods more expensive to U.S. consumers, which hurts Japanese exports if Japanese companies increase prices to compensate for the dollar's fall.

"Right now we're getting into that 'Twilight Zone' where traders sense that the Bank of Japan may intervene to support the dollar, and some traders are not as aggressive on dollar-short positions versus the yen, as a result," Resnick said, adding that he is currently flat.

"If the dollar falls to 105 yen, then it will get really tension-filled. The Bank of Japan may let the dollar fall a little more, for a variety of reasons, but it's hard to envision the dollar falling to 105 yen without some action by the Bank of Japan," Resnick said.