Madrid is gonna face City/Celtic, but most probably City if they were not lucky enough. I just got an update from UCL.
It's already confirmed there are only Celtic and City to be their opponent. If they're getting Celtic, they're good. If they're facing City, it sounds bad consider they have only 50:50 to qualify to the R16.
The match that Ancelotti avoided the most actually happened earlier, if Madrid really meets Manchester City in this play off we are like watching the final being held earlier. Honestly every time Madrid meets Manchester City, it is not easy for Real Madrid to get out of the pressure. It is quite difficult to say whether Ancelotti with the current squad is ready to face Manchester City or not.