The veteran trainer has played up Los Colchoneros' chances of causing an upset in the city derby next month, and has praised the club's development in recent years
Los Blancos have won their last six domestic games, but remain five points behind their fierce city rivals in La Liga.
"[Atletico] are playing like a team and of course I think they have a real chance of winning at the Bernabeu," the 61-year-old told reporters.
"Atletico's role makes our league more exciting. Obviously we have two huge clubs, Madrid and Barcelona, but 'Atleti' is there in the mix.
"For now we have to applaud everything they've done in recent years, not just their European titles, but also their performances in the league. We can't possibly know if they can keep it up until the end, but they're up there for now.
"We can only talk about what has happened, because it's difficult in football to talk about what is going to happen. But for now, Atletico Madrid's performances are worthy of praise," he added.
The former Spain international was speaking at the opening of a sports facility for mentally disabled people in Madrid, which is to be named after him.