Barca have shown signs of improvement since Xavi replaced Ronald Koeman as coach in November, climbing to within one point of the top four in LaLiga, but have yet to find any sort of consistency.
They go into the Clasico on the back of a disappointing 1-1 draw against Granada at the weekend, but Xavi is still hopeful they can beat Madrid and set up a final against either Atletico Madrid or Athletic Bilbao in Riyadh on Sunday.
"This game is a huge opportunity to reach a final and it could be a turning point for us," Xavi said in a news conference on Tuesday.
"Madrid are the most in-form side in Spain, the league table shows that, but this is another competition. The Clasico is always unpredictable.
"Reaching the final would represent a point of inflexion. But whatever happens, we will be realistic. It's an important game and a huge test, one which will show us where we are after [two months in charge]."
Injuries and a COVID-19 outbreak have hampered Xavi's time in charge so far, but Barca are finally beginning to get players back.
"It's great news for us that they're all available again," Xavi said. "They're players that are key to the system and can make a difference in the final third.
"As well as Ronald [Araujo] and Frenkie [de Jong], they're coming back from various injuries and COVID-19, so we will manage their minutes, but they improve the team without any doubt."
Barca lost 2-1 to Madrid when the teams met at Camp Nou earlier in the season and are 17 points behind the league leaders in sixth place in the table, albeit with a game in hand.
However, midfielder Sergio Busquets has said all that counts for nothing on Wednesday.
"I don't care if people make Madrid favourites," Busquets said in a news conference.
"When a Clasico starts, everything else is forgotten. The gap in the league doesn't matter. We have to be more solid, but we will go for the game and be true to our style."
Xavi added: "I've experienced Clasico games when Barcelona have been huge favourites but then lost and vice versa.
"We're a team in construction but we're trying to do things right. Madrid are in good form but it means nothing. We will try to be ourselves and impose ourselves on the game."