We fell to our first defeat of the Europa League group stage as goals from Joey Veerman and Luuk de Jong denied us the chance to book a spot in the last-16.
After a tight first-half finished goalless, the introduction of veteran striker De Jong changed the course of the game, as he registered a goal and an assist in an eight-minute period to seal victory for the hosts inside a raucous Philips Stadion.
The result now means that we need to beat FC Zurich at home next week to guarantee top spot in the group, and skip February's play-off round.
Offside calls keep us level
Knowing they had to win to have any chance of topping the group after next week’s final round of games, the hosts took the game to us in the early stages, and Aaron Ramsdale - playing his first-ever European tie - was forced to make a low save early on to push away Xavi Simons’ drive after the youngster found space in midfield.
But on 19 minutes came the first warning when Cody Gakpo put the ball in the net. Veerman’s threaded pass allowed the pacey attacker to escape beyond our backline and coolly dink the ball over an onrushing Ramsdale, but he was correctly flagged offside.
Two minutes later Walter Benitez dirtied his gloves for the first time when an improvised flick by Eddie Nketiah caused him to backpeddle and palm the attempt over his crossbar, but he could easily have been picking the ball out of his net when Gabriel Martinelli had a golden chance to mark his 100th Gunners appearance with a goal, but blazed a volley over.
That looked to be a costly miss as a couple of minutes before half-time, Simon managed to wriggle his way past three defenders into the area before tucking the ball home to spark celebrations once again, but after a lengthy VAR check the goal was again correctly ruled out as Anwar El Ghazi was offside during the build-up.
Two in quick succession
The first half ended with Martin Odegaard stinging the palms of Benitez after we pounced on some hesitation as PSV played out from the back, and the game continued to be an end-to-end affair after the restart with Nketiah and Kieran Tierney shooting off-target, before Ramsdale made two saves in quick succession to deny Simon and Veerman.
But the latter would get another sight of goal on 55 minutes, and this time he would dispatch it. After arriving from the bench, De Jong held the ball up well on the edge of the area and sucked in defenders, allowing him to slip the ball off to Veerman to drill confidently into the top corner.
Then eight minutes later, the tie began to slip away as PSV grabbed a second. Gakpo whipped in a corner and Ramsdale missed his punch, allowing De Jong to head the ball into the net and put his side in firm control.
The danger kept coming and Gakpo had the ball in the net again when he tucked home a low cross but was again ruled offside, and then De Jong powered another header narrowly wide of the mark.
Chasing the game, we continued to press for a goal that would bring us back into contention and Nketiah thought he had it when he smashed a deflected Xhaka strike goalwards, but a wonderful save by Benitez and some brave defending by Jarrod Branthwaite kept their sheet clean.
What it means
We host Nottingham Forest on Sunday as we aim to get back to winning ways in the Premier League, before our Europa League group stage closes with a visit from FC Zurich - our final European action of 2022.
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