PSV is not a favorite against Arsenal, especially if Arsenal plays at home. Arsenal have performed well at the start of this season even though they have also struggled to win their last 4 matches in the Premier League. This will be a good match for both of them considering their meeting record in the last 4 Champions League matches. Arsenal and PSV both have 1 win and 2 draws and 1 loss each, so this will be a tough match for both.
In the champions league; there are no favorites in the group stage; anyone can beat anyone, anyone can defeat anyone. Also in the champions league; there is nothing like league form, you can be on a 20 game winning streak in your league; and get defeated in the champions league. Arsenal needs a top performance to compete in the champions league.
The performance of the team in the domestic league also has a key effect in determining how well it will perform there sometimes or most times too. Although, in other circumstances, the management of those teams prioritise one league over another based on how far they believe their team can reach and go without losing from both sides during the acquisition process. Some managers are also set targets to meet before the end of the season, so they prefer to focus more on what they're requested to do in order to keep their job rather than focusing and spending their efforts on both sides. Achieving both could still have helped, but some people don't want to take the chance to risk that, and it won’t be cool to lose the job at the end of the day while trying to impress the team’s owners.