Things may have turned out differently had Roberto Pereyra converted a rebound unmarked from five yards out in the first half, while skipper Troy Deeney had a penalty saved by Petr Cech with the scoreline at 2-0.
Gracia thinks that his side were worthy of a goal in North London, telling reporters at his post-match presser: "I'm disappointed because I can't believe we didn't score a goal. We conceded an early goal and then the game changed.
"In the first half both sides created many chances. In the second half we played better, we had more control of the game, but after the second goal it was very difficult.
"We tried to score with a penalty, we missed and after that we know Arsenal on the counter-attack are very dangerous. It was a very open game. I would prefer another way but it was like this and we'll try to do better in the next game."
Watford have now lost all five of their away Premier League matches in the month of March.