For anyone who encountered the same issue, can try with following steps:
Install sysdiagnose profile on iPhone: https://download.developer.apple.com/iOS/watchOS_Logs/sysdiagnose_Logging_Instructions.pdf
Trigger a sysdiagnose by pressing and holding both the Side and Digital Crown buttons on the Watch for two seconds and release, Watch will restart automatically
Restart Xcode and hopefully it may recognise the Watch
yanjin666
Users receive reputation points by contributing quality content to the forums.
Posts include post and replies published on the forums.
Post authors can mark replies as Accepted to indicate successful solutions.
Apple Developer Forums admins can mark replies as Apple Recommended to indicate an approved solution
Post
Replies
Boosts
Views
Activity
Already tried all kinds of method, including restart device / reconnect bluetooth / reconnect WIFI / repairing watch / reinstalling Xcode, anything you can imagine, I have already tried!!