That's the way attacking works in Daggerfall—hold the attack button and move the mouse in the direction you want to swing your weapon. For example, when using a bladed weapon, moving the mouse from side to side will cause your character to slash horizontally; moving the mouse forward will thrust; moving the mouse diagonally will slash diagonally; and moving it backward will chop. I most often utilise horizontal slashes, which result in base accuracy and damage, a good balance, using thrusts when I need a little more accuracy, which forfeit a little damage.