The striker is set to leave Liverpool this summer.
The striker is set to leave the club at the end of the season after failing to agree to a new contract.
The Hornets would be able to secure him on a free transfer, but as he is under the age of 23 a tribunal would have to set a compensation price.
Watford could avoid that by using sister club Udinese to sign Sinclair for £250,000 compensation if they wish, but do not want to spoil their relationship with Liverpool.
Instead, they will use this weekend’s clash between the two sides to thrash out an agreement over the striker, reports the Daily Mail.
The Reds are thought to value the player at around £5million, although Watford boss Quique Sanchez Flores side will be hoping to reach a compromise that is lower than that price.
The youngster may be the first of many to leave Anfield this summer, with many expecting Jurgen Klopp to wield the axe on the squad he inherited from Brendan Rodgers.