According to La Gazzetta dello Sport, Udinese will again send several of their benchwarmers to the feeder club in England’s second tier.
Merkel is a 21-year-old midfielder who was born in Kazakhstan and plays for Germany, having grown up there.
He had a brief and injury-plagued loan spell at Milan before joining Udinese in January 2013, but has not made a single appearance this season.
The other reinforcement for Watford is Swedish striker Ranegie, who has been at the Stadio Friuli since August 2012.
He has played four matches this season, but last term the 29-year-old scored one goal in 20 Serie A games, most of them brief substitute appearances.