The Red Devils will head into the match placed eighth in the table with 17 points from 10 matches, eight points off the pace, but are unbeaten in their last eight competitive fixtures.
On the other hand, Arsenal are five points clear at the top of the league table and have defeated Liverpool and Borussia Dortmund in their last two games.
However, Smalling believes that United will be favourites to pick up maximum points against the Gunners at Old Trafford.
"We are going into the game with a lot of confidence," the 23-year-old told United's official website.
"We drew with Real Sociedad in the week but we had a lot of chances to win the game and I think we have gained a lot of confidence from our run of late.
"We are playing at Old Trafford and really looking forward to it. I don't think there are any must-win games at this stage but it is still obviously a massive game.
"We are at home and we have to be the favourites to win. We have to take the game to them and show that we are the team that wants to win and close the gap.
"We will look at the videos and see what they are doing well. As a defence, we will then work on things to minimise their impact but we won't think about it too much.
"As a whole team, they are playing very well. We will find out their negatives and weaknesses, then try to punish them."
Watch Manchester United's vital game against Arsenal live on Sky Sports 1 HD on Sunday from 4pm as part of a hat-trick of Super Sunday matches.