Last term, Real played out a 1-1 home draw with City in the semi-final, first leg before being thrashed 4-0 by Pep Guardiola's side, who won the competition for the first time.
Last week Real and City slugged out a 3-3 draw in a rip-roaring quarter-final, first leg clash in Madrid.
"I think we've forgotten what happened. We are focused only on tomorrow, thinking about what happened a week ago," Ancelotti told reporters on Tuesday.
"The last game was close, now anything can happen. We believe we have the necessary quality to create problems."
City have won their last three home matches against Real, and Wednesday's game is likely to be entertaining after their last five meetings produced a total of 23 goals.
"Games against City have always been spectacular. Tomorrow will be the same," said Ancelotti.
The Italian added that facing City again did not worry him.
"The only thing that will stop me sleeping is if I eat too much tonight," he said.
City striker Erling Haaland was singled out as a player who could give Real trouble at The Etihad.
"If we are talking about individuals, Haaland is one of the most dangerous players City have," said Ancelotti.
"He didn't appear much in the first leg, but Haaland could be one of the best strikers in the world right now. He is always dangerous."
Bellingham Praised
Ancelotti also praised Real's England midfielder Jude Bellingham, who has four goals and four assists so far in Europe's elite club competition.
"For the future of Real Madrid, he will be one of the most important players. Sometimes we forget he is only 20, he is a fantastic player," Ancelotti said.
Bellingham himself did not know who the favourites are in Wednesday's match.
"They (City) are treble winners, an amazing team. But that is the impression from the outside," he said.
"I don't go to the bookies, so I don't see the favourites, but we are a pretty good team ourselves. We trust in ourselves and our ability in the changing room."
Bellingham also said he did not feel nervous ahead of the second leg.
"I'm more nervous about this (press conference). These are the games you join Real Madrid for, I can't wait to get out and get playing."
