The Burnley manager's former club looked set to inflict a second-consecutive defeat on the Clarets after Troy Deeney had fired them into an early lead.
But Burnley were rewarded for their efforts with four minutes remaining when Scott Arfield fired home the equaliser to increase the gap over third-placed Queens Park Rangers by a further point following their defeat at Bournemouth.
Dyche said: "I didn't think it was just battling, I thought it was real good quality.
"After they scored the goal they were pretty defensive minded and they sat off us and we had to find a way of breaking them down and it was difficult because the mentality has changed from last year when it was open and free flowing.
"I think there's now a more defensive base, certainly the games I've seen when we watching to see how we could play them.
"So I think we stuck with our game-plan really well, didn't get disappointed by the goal, I always feel this group has got a chance to get something from the game and we've done it again, come from a goal down at it's another valuable point."
Asked how he saw his side's promotion prospects on the back of the result, Dyche responded: "I just see it as I see it all year. We've got a big game Tuesday, that's been our focus all year.
"The next game comes around quickly and we'll be ready for that. We'll enjoy the moment, whatever that moment is of course, but then we look forward to the next game and our one is Tuesday.
"We can only take care of what we do and not worry about what everyone else does."
For Watford head coach Beppe Sannino it was a familiar tale of seeing his side take the lead only to let it slip late on.
"If you saw the match, in my opinion the answer is yes," he replied when asked if he felt Watford deserved to have won.
"This game reflects perfectly Watford's season. The last 10 minutes we always throw away everything we do.
"When we had the chance to kill the game and score the second goal we should score and now maybe we could smile and Watford people could have a different evening."
Despite the disappointment of conceding late on, Sannino was pleased with his side's display.
He said: "Considering the team that we were facing, I'm very pleased about the performance.
"I did count 12 chances to score, including the goal that we scored, so I think the team did what I was asking them to do.
"If you see the celebration of Burnley when they equalised you can see how they were battling for this goal and how they were happy because maybe they didn't imagine to equalise."