A win at White Hart Lane would leave Spurs seven points clear of the fifth-placed Gunners and well on course for a top-four finish but the new signing from Schalke can see the potential for more.
"I'm new to the club but I've played in derbies - Schalke against Dortmund, the mother of all derbies they call it, in front of 80,000 - we won that away this year, 2-1," he told reporters.
|11/1||Lewis Holtby is 11/1 with Bet365 to score the first goal in Tottenham v Arsenal
The German has already faced the Gunners twice in the Champions League group stage before making the switch to north London in January, a fact which he is sure helps him prepare for Sunday's clash.
"Mentally, for me, it's not bad to have gained four points against them," he continued. "We were 2-0 down at home and got it back to 2-2. At the Emirates we won 2-0. So it's good for my head that we can beat Arsenal as well. I think we have the quality to beat them, especially at home, but it's going to be an intense game."
The 21-year-old is still finding his feet in the Premier League but feels that he is in the right country to improve his game, praising Andre Villas-Boas for the mental strength that he gives to the side.
"I loved playing for Schalke but, for me, it was the perfect time to move to Spurs," Holtby added. "I have made the right decision - my dream was always to play in the Premier League. In my position, in midfield, [Villas-Boas] gives me a free role and tells me to get involved. He's doing a real good job."