Xhaka acknowledged that the chasing pack need City's relentless form to slow down if they are to stand any chance of catching Pep Guardiola's side, but insists that his side are still capable of breaching the gap should that happen.
"I think in football everything is possible. Manchester City, at the moment, are on a very good run, they're doing very well and others have dropped points - which they haven't done - but it's conceivable that they could drop points as well," he told Sky Sports News.
"They might not continue as they have been. But our aim is just to focus on ourselves. We know we need to work and we're convinced that we can compete at the top.
"Everything's possible, I'm a person who thinks realistically but has dreams and fantasies as well. In football, everything is always possible."
Arsenal's next league match comes against Burnley at Turf Moor on Sunday.