The 25-year-old joined the English champions in a €65m deal from Juventus this summer but has been a fringe player at the club so far, making just four Premier League starts from a possible 18.
It follows on from a report last week in local media outlet Super Deporte which claimed Valencia were in the market for a Cancelo return.
The Portugal international has not been able to dislodge Kyle Walker from the starting spot in Pep Guardiola’s side and a return to Los Che - where he played between 2014 and 2017 - is now a possibility.
Cancelo joined Juventus from the Mestalla in the summer of 2018 after a loan stint at Inter, but his career has now stalled in England.
It is said by the report that right-back is Valencia’s priority position to upgrade after summer signing Thierry Correia has failed to impress in the position.