Wenger, who has been at the north London club since 1996, is suffering his toughest test at Arsenal with the team languishing in 10th spot in the Premier League.
And Graham said: "Arsenal have lost a lot of their confidence.
"Arsene is an attacking coach and when they are on top the football is phenomenal.
"But now they have been found out because not only have their quality attacking players been leaving the club but also the onus is on the club's defenders.
"They are having to defend like they never did before because they were always on the ball, had the giant's share of possession, going forward and were scoring goals.
"Robin van Persie was the main scorer last season and he got them into the fourth spot and now they are being asked questions about their defending."
Graham added: "Arsenal have slipped away from the standards Arsene set when he first came to the club."