Hi @danhouck85 ,
It appears that the case/display assembly separation may be affecting the touchscreen, perhaps by causing an intermittent connection or loose connection between the display assembly and the systemboard making it appear as “ghost” touching or it having no touch at all.
Here’s a link to the ifixit Asus ZenWatch 2 Repair guide, which may be of some help so that you can open the watch to inspect it for any obvious problems between the display assembly and the systemboard.
Worst case is if the problem is in the digitzer (touchscreen) itself. As it appears to be a part of the display module the whole module would have to be replaced.
Here’s a link to a supplier of the part. (select the “display” checkbox to find the part number and the cost of the part). You can try searching online for different suppliers by typing the appropriate part number only in the search box of your browser and see if you get results for suppliers that may suit you better if you have to replace the module.
Also of concern, why is the case separating from the display assembly at that one point?
Post some images of where this is occurring and hopefully someone may know why this is occurring. Here’s how to do this. iFixitでの質問に画像を追加する方法