After Etienne Capoue hit the post, the game appeared set to finish all-square until Tom Cleverley popped up with an injury-time victor to complete the recovery mission and send Watford above Arsenal and up to fourth.
Watford's victory lifted them above Arsenal and Chelsea and they are seven points adrift of league leaders Manchester City.
Sanchez's Chile stunningly missed out on qualifying for the 2018 World Cup after a 3-0 loss to Brazil on a dramatic final day in CONMEBOL on Tuesday. We were sluggish on the ball, toothless up front and then terrible at the back. We have to have more confidence about our game.
Miguel Britos's error allowed Arsenal to launch a swift counter-attack but Christian Kabasele's sliding challenge on Iwobi in the box ended the danger.
And as there is no firm interest in Ozil, 29 today Arsenal would have to cash in on Sanchez, 28.
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Titans coach Mike Mularkey said he spoke with Matthews about the tweet and the issue was being handled internally. The Titans remained in the locker room during the anthem before their Week 3 game against the Seattle Seahawks .
It was Arsenal who nearly scored straight away however, with Ozil setting up Iwobi, who was denied by the fingertips of Gomes.
Tom Cleverley hit a last-gasp victor as Watford came from behind to beat Arsenal and check the Gunners' recent run of form. Seconds later Hector Bellerin fouled Richarlison and Watford were level.
Arsenal sought to regain the lead but another promising attack with men over ended when Nacho Monreal delayed his shot and was dispossessed.
The closing minutes saw Arsenal come under siege, with the post helping it out when Capoue's drive struck Mertesacker's chest to wrong-foot Petr Cech.
"We didn't know if Koscielnly would survive for 90 minutes", he added.