Following Tuesday's 2-2 draw at Southampton, the Gunners slipped to second in the Premier League and were overtaken by City, who beat Tottenham 5-1 at White Hart Lane.
But Wenger insists that his side can recover the top spot, pointing out that City still has difficult fixtures on the road to come in 2013-14, including trips to Manchester United, Liverpool and Everton as well as the Emirates Stadium.
"On the fixture front, they have more difficult fixtures than we have. Yes, they are the favorites. I agree with that at the moment. You cannot say that a team that scores over 100 goals has no quality.
"They are top quality but it is an even bigger target and scalp for us to get in front of them. It would be absolutely fantastic and I think we can do it."
Arsenal still has games to play against every side in the top eight but Wenger maintains that his side will remain in the title hunt with its solid away record.
"Yes, we have [still to play the big teams] but, as well, it is a good opportunity for us," the Frenchman continued. "We play Manchester United at home, Man City at home, we go to Chelsea, Liverpool and Tottenham but, if you look at our away record, it is very good, so we know that away from home we can do very well.
"Since December, I have said to the players, 'The Emirates will decide our season.'"