The EUR/USD slid from its perch above 1.38 in overnight trading and was as low as 1.3745 in early NY trading.

Euro-zone data came in mixed today, showing Euro-zone services sector activity for January climbing to 55.9 from the preliminary reading of 55.2 (See Full Release Here - PDF). However, the data showed that Germany and France are showing strong growth while the rest of the Euro-zone see slower growth.

We also had retail sales data from the Eruo-zone show that sales fell in December by 0.5%, which is the second month in a row that sales are negative.

From Reuters: Euro-zone retial sales fall in December

We had a heads-up for a bad number after the German data, but nevertheless the performance in the quarter for the euro zone is very bad. (quarter-on-quarter rise of 0.4 percent in Q3, fall of 0.6 percent in Q4). That's the first fall since Q3 2009. It's a huge downward surprise.

You have the peripheral countries struggling against multi-year fiscal consolidation. And in the core countries more positive dynamics.... and that should help the euro zone perform a bit better.

Even allowing for a significant hit to retail sales in December from the severe weather, the weak data fuel concern that consumer spending could hold back euro zone growth going forward despite the recent improved data and survey evidence relating to manufacturing and services activity.

There is strong concern that weakness in consumer spending will extend through most of 2011 and will be a soft link in the euro zone's recovery.

As Much as it Wants, Can ECB Actually Hike Rates?

The news today also points to a two-speed European recovery. That presents a problem for the ECB which is signaling that an interest rate increase is in the cards as annual inflation climbed to 2.4% for January. However, the ECB may only be able to use the bully pulpit at this point as a rate hike is not expected till later in the year (4th quarter for some). We'll see how hawkish ECB Trichet sounds in his press conference.

There was some concerns about the euro-zone debt problems as yesterday we had Ireland's credit rating downgraded by Standard & Poors'. Also, Thursday' government bond auctions from Spain and France, whil successful, weren't exactly well received. But, for the most part these auctions were ignored.

There is also some risk aversion going through the markets as the protests in Egypt turned violent which dented demand for riskier higher-yielding assets and increased demand for the USD.