The Barcelona-based side enter the weekend looking nervously over their shoulders in the Primera Division after defeat to Osasuna last time out left them just six points above the relegation zone.
That gap to the bottom three could shrink even further this weekend if Espanyol do not pick up anything up against high-flying Madrid but, on the flip side, if they can claim the three points then things could look a whole lot better.
That is the opinion of Sanchez, who said: "Espanyol can show what they can do and if we get a result it could be a watershed.
"It's never a good time to play against teams like that, because it seems like it's going to be difficult, but if you get a good result it's a real boost to moral.
"We're doing okay at home, we finished last year with a win over Real Valladolid. We have a nice week ahead of us and we want to get good results in the league and get through to the next round of the cup."
To achieve that Copa del Rey goal, Espanyol will have to overcome a 1-0 deficit to Alcorcon in next week's last-16 second leg, and while Sanchez would love that to happen, he admits their priority is the league.
"The cup is nice but the important thing is preserving our league status, which is our food and drink," he added.
In contrast to Espanyol, Madrid go into the game having won both of their fixtures in 2014 without conceding a goal and will be determined to build on that at the Estadi Cornella-El Prat - especially as they have a golden chance to close the gap on one or both of the top two.
That is because joint leaders Barcelona and Atletico Madrid, who are both five points clear of Madrid, meet at the Vicente Calderon on Saturday night.
Speaking after his side's 2-0 cup triumph over Osasuna on Thursday, Ancelotti said of the table-topping clash: "It is hard to think about what the best result for us would be. They cannot both lose, but neither can they both win. We have to win to make up points with Barcelona or Atletico."
Midfielder Luka Modric added on his club's website: "We have to get ready for the next match, which will be tough. It'll be the third match we play this week, but we have to win to close the gap with Atletico, Barcelona or both".