The correct option is B that we watched last week
An adjective clause is a group of words that contain a subject and a
verb, and it functions as an adjective that modifies a noun or a
pronoun. Adjective clauses usually begin with relative pronouns such as
who, whom, whose or a relative adverb like when, where and so on.
Option
B is correct as it is an adjective clause containing a subject 'that'
(which is a relative pronoun), a verb 'watched' and modifies the noun
"movie".
Option A is incorrect because it is a phrase, not a clause, it does not contain a subject nor a verb.
Option C is incorrect because this is also a phrase.
Option D is incorrect because the answer lies in B.