Dyche said: "I've seen it again from two different angles and I cannot say what it was given for.
"You can usually tell if opposition players appeal for a penalty but on this occasion they did not. None of them reacted.
"Referees have a tough job to do but this is the strangest decision I have seen for a long time.
"These things happen and you just have to get on with it because there is no point in complaining.
"We started fantastically well and frustrated Southampton early in the match but we did not make the best of those early chances and did not keep the ball enough."
Saints boss Nigel Adkins said: "We had to battle in the first half and credit to Watford for making life difficult for us.
"But we have a fit and talented group of players who turned it around for us.
"We were absolutely fantastic in the second half. We played some great stuff and made enough opportunities to have scored more than four."
Adkins then sought to dampen lower expectations in the Saints camp.
"People are talking about us as potential champions but we are only 10 games in to the season and there is a long way to go.
"We had a tough game at Cardiff on Wednesday but we got over that and some of our football in the second half was a joy to watch."