Has my Apple Watch been hacked?

My watch in the last couple of weeks has started asking me to "sign in to icloud" ans it gives me options "password" or "cancel". If I hit password it gives me options "use finger to write code or use a keyboad. Well I get stumped here. I can sign on my windows computer here and I see my watch is attached. My iphone is signed in and my ipad is signed.

Has my iwatch been hacked? I feel very insecure to used the finger touch on my watch to enter my apple password.

Any others ever have similar issues?

[Re-Titled by Moderator]