The Italians - who beat Liverpool in last season's final - have hardly been in top form, with successive draws to sit in fifth place in Serie A, but some 21 points adrift of leaders and city rivals Internazionale.
However, Ancelotti's men remain full of European pedigree, spearheaded by World Player of the Year Kaka.
In last season's semi-final, Milan were beaten 3-2 by Manchester United at Old Trafford, but went on to record a comprehensive 3-0 victory in the return leg.
Ancelotti believes that experience could prove key to this tie.
"We can even lose this first leg. We lost in Manchester," he said.
"It is important to understand that we can still do it even if we lose this first leg. We can win the return match."
Ancelotti continued: "We will need personality and character to win this game.
"The success of AC Milan in the last few years has always been about finding that personality and character.
"I am confident. We still have a lot of motivation to do well in this competition, and we are very determined to get through.
"We have the qualities to get through this tie."
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