The Gunners defender has moved to Vicarage Road for a short term spell, while experienced centre-back Fitz Hall has returned to the promotion-chasing Championship club
The Barcelona youth product moved to north London in 2011 and signed a long term contract to stay with the Emirates Stadium side in July this year.
The 18-year-old right-back will play for Gianfranco Zola's Premier League hopefuls until January 2014, subject to international clearance.
Watford have also completed the signing of Fitz Hall, the former Southampton, Wigan, Crystal Palace and QPR defender.
The 32-year-old centre-back initially joined Watford on a one-year contract during the summer of 2012, but made a limited number of appearances for the club due to injury.
Hall has since been training with the club, however, and has signed a one-month deal.