The 18-year-old, who began his career with Leeds United, can play on the wings or through the middle and will provide cover for the Hornets as they aim to continue their climb away from the relegation zone.
Manager Brendan Rodgers said: "He is a highly talented, committed player and is left-sided. He has been on my radar for some time.
"He is highly thought of in the country and he has got a big talent.
"I want players you can trust and who are hard working and he fits the bill."