Hi,
You mention that you have forgotten your iCloud password. You will need your password for this exercise and for your account and devices into the future, so you will have to reset it. Follow the steps in If you forgot your Apple ID password - Apple Support
Note in the support document Set up your Apple Watch - Apple Support
Apple says
If an Activation Lock screen appears:
Your Apple Watch is linked to an Apple ID. You need to enter the email address and password for that Apple ID to continue set up.
You haven't detailed what you have tried already, but Apple has a set of instructions about turning off Activation Lock for an Apple Watch in About Activation Lock on your Apple Watch - Apple Support