This paper explores the possibility to employ velocity bunching [1] in the first RF module of the European XFEL [2] (referred to as XFEL in this paper) to increase the peak current at the injector exit. The current increase will reduce the total longitudinal bunch compression factor and loosen rf jitter tolerances by the same amount. The relation between rf tolerances and micro-bunching instability gain is discussed and the injector optimization for cases of velocity bunching to 100 A and 200 A peak current are presented in detail. Finally, plans for velocity bunching experiments at the FLASH facility (Free Electron Laser in Hamburg) [3] are laid out.