It wouldn't be surprising if he went to Bayern Munich because I remember he has a history there as a football player. I don't think Xabi, who did wonders in the Bayer Leverkusen story, would go directly to Bayern so as not to disrespect them. Maybe it could be an option for Liverpool. Liverpool could be better with him in the Premier League.
Ideally, Xabi Alonso must move to another league if he doesn't want to move to the rival of Bayer Leverkusen. Liverpool already made an offer for him after Jurgen Klopp decided to leave Liverpool. However, it is not impossible if Xabi Alonso may move to Bayern Munich because he wants to success with his previous team in Bundesliga. Xabi Alonso was a plyer of Bayern Munich, it will be a proud to success with Bayern Munich as a coach. It is also quite usual that rising players or coaches to join Bayern Munich in Bundesliga. It already happened many times, specifically the players from Dortmund.
Well, lets' see what Xabi Alonso prefers for his career. Liverpool is good if he wants to have a challenge in the most competitive league in the world. But if he prefers to win another title, he will have a higher chance to win it with Bayern Munich.