Explanation

With first-person subjects, 'shall' is the traditional modal for simple futurity, and it is the intended choice in this indirect question after the past reporting verb 'was wondering'. 'Will' would need backshifting to 'would' after 'was wondering', 'might' changes the meaning to mere possibility, and 'do' cannot form a future question at all. So 'which festival shall we celebrate' is the grammatically intended answer.