The fierce rivals meet at the Santiago Bernabeu on Thursday in the first of three Clasicos in a month, with a crucial LaLiga fixture sandwiched between their two-legged cup tie.
Barca have won two of their four meetings with Madrid since Xavi took charge, which includes a 4-0 league win last season and 3-1 Supercopa de Espana final victory in January.
The Catalan giants are also seven points better off at the top of the league, but Xavi believes Madrid’s status as reigning Spanish and European champions makes them favourites.
“Madrid will continue to be the favourites because they are champions of LaLiga and the Champions League,” he said at Wednesday’s pre-match press conference.
“That is regardless of what happened in the Super Cup, where we did well, or any other factors.
We may have beaten them in the Super Cup, but this is Madrid. I have to be honest. But I also think we can hurt them and I expect a very even tie overall.”
Barcelona have enjoyed an impressive first full season under Xavi, but back-to-back losses have halted their momentum.
Despite being eliminated from the Europa League by Manchester United and dropping three points against Almeria, Xavi is happy with the position his side find themselves in.
“The loss to Almeria made me very angry, but we start again with a clean slate,” Xavi said. “It’s a competition we’re doing well in, and we’re three games from another title.
“This will provide us with another chance to react. We know we have to be more of a team than ever, with the small details making the difference.
The message to the fans is that we remain in an ideal, privileged situation to win two more trophies. We are in the Copa semi-final and are leaders in the league.
“We know things can go wrong, but we are here to try to avoid that from happening.”
Barcelona are without Robert Lewandowski for the first leg, while Pedri and Ousmane Dembele remain sidelined, but Ansu Fati has returned from injury and is part of the squad.
“He’s had a bruised knee but is training with the group and feels good,” Xavi said. “I see a happy and motivated player who is important for the team.”