Workaround: During "Copying shared cache symbols from Apple Watch", ensure all device screens (Watch, iPhone, Mac) never sleep. Do this by tapping the face of each frequently. This enabled successful pairing and testing of Watch App on my Apple Watch.

I have the same problem. Have restarted devices and reinstalled Xcode and the same issue occurs. First I see this: "Copying shared cache symbols from Apple Watch (7% completed) Xcode will continue when the operation completes." Then I see: "Apple Watch may need to be unlocked to recover from previously reported preparation errors Ensure the device is unlocked and near this Mac for better connection quality."