City are top of the Premier League on goal difference while Schalke, last season's Bundesliga runners-up, are languishing in 14th place in the standings.
Guardiola, who coached Bayern Munich for three years before joining City, said on Tuesday that the German side were a force to be reckoned with in front of their home crowd.
"I think the quality is there. Schalke is always fighting, the expectations are always high and last season they did it," the Spaniard told reporters.
"Every team wants to qualify for the Champions League and they did it. Sometimes to maintain that level is tough, but it is two games and the quality is there and the stadium is there. We know that."
City forward Gabriel Jesus and defender John Stones have missed the trip with minor injuries as the English champions look to set the foundations for a last eight spot.
City have won the Premier League three times since the Abu Dhabi United Group bought the club in 2008 but have never got past the semi-final stage of Europe's elite club competition.
They have been knocked out in the last 16 three times in the last five seasons while their only semi-final appearance came in 2016 when they were eliminated by Real Madrid.
"We have to control our emotions, suffer the bad moments, The right moments make the difference," Guardiola said.
"We are confident. We arrive with many dreams in our heads. We want to try and score goals. We will try to get a good result to finish the job in Manchester."
(Reporting by Karolos Grohmann; Editing by Ken Ferris)
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