The Hornets were hoping to bounce back up to the Premier League this season, but endured an inconsistent campaign in the Championship, leading to disappointment.
They could book just an eleventh place finish and missed out on reaching the playoff spots by six points.
Despite being unhappy with the way the campaign unfolded, Watford are planning for next season with sporting director Giaretta.
And, according to Italian broadcaster Sportitalia, Watford are working on a new contract to continue their association.
The club want to continue with Giaretta and want to lock him down on fresh terms to keep working in his role at Vicarage Road.
Watford are expected to be active in the summer transfer window as they look to reshape their squad for a promotion tilt next term.
Giaretta took his role at Watford in the summer of 2020, having previously worked in Bulgaria at CSKA Sofia.