The 21-year-old fell out of favour with Mikel Arteta after a scuffle with Neal Maupay following the 2-1 loss to Brighton back in June.
Guendouzi didn’t feature for the Gunners after the incident for the rest of the campaign and was absent again in the Community Shield win over Liverpool on Saturday.
According to the Mirror, Valencia want to take the Frenchman on a one-year loan deal which will include an optional clause to purchase him permanently for £16million next summer.
Guendouzi’s representatives have held discussions with the La Liga club, who want a definitive response by next weekend.
However, Arsenal prefer a permanent switch as they aim to raise funds for their other transfer targets.
Atletico Madrid’s Thomas Partey and a new loan deal for Dani Ceballos – who has returned to Real Madrid – is top of their priority list, meanwhile, centre-back Gabriel Magalhaes’ move to the Emirates looks imminent.
The report states that the club want to offload Guendouzi and fellow outcast Mesut Ozil.
This comes just days after Mikel Arteta announced that in a conversation with Guendouzi in the off-season, he told him he was being handed a fresh start this season.
‘I’ve been really clear that everybody starts from zero. What you did two weeks ago or two years ago, doesn’t really matter. It’s what you are able to contribute to the team now.
‘Yes…I’ve told him [Guendouzi] exactly that. That he’ll be part of the team and at the moment he’s like any other player in our squad. He deserves to be treated exactly the same and I will do that to my best capability.’