Speculation on Friday suggested the two clubs had agreed a £6million for Gestede, who scored 22 goals for Blackburn last season, but Shaw says those claims are wide of the mark.
“We have not agreed a fee with Watford but they have expressed an interest,” Shaw told the Lancashire Telegraph.
“Rudy is not someone we are seeking to sell but we can’t prevent clubs from showing an interest.”
Gestede, who has scored 34 goals in 65 appearances for Rovers since a £200,000 move from Cardiff City in January 2014, admitted in April that he would like a move to the top flight.
“I hope to be in the Premier League next season,” the Benin international said. “That’s my ambition.
“It’s all speculation at the minute but if I get the chance to find a club then I would love the challenge and take it if Blackburn want to sell me.
“I’m ready for the Premier League. I’ve been playing regularly for 18 months now. I just need the chance.”