From Wikipedia:
“Touché” may be used in informal conversations as a defense against veiled criticism (veiled sarcasm). The receiver of a veiled criticism speaks the word to show that the veiled message has been “seen through” and that the “hit” has been felt. The receiver says “touché” to point out to the sender that the attempt to veil the hit was unsuccessful.In this way, saying “touché” is a defense against subtle denunciation (often in the presence of others), especially when the sender is attempting to demonstrate that the receiver has insufficient awareness to feel the hit – a kind of intellectual subordination on the part of the sender. Saying “touché” in such a context neutralizes and exposes the sender’s intentions and is especially effective when it is understood – by all present – that an attempt to veil such criticism reflects poorly on the sender in some way (passive-aggressive, disingenuous, deceitful, etc.).In addition, “touché” is increasingly appropriate as a response to a message that may not be intended as offensive or critical, but is nevertheless taken as such. “Touché” can inform the sender that the message is a “hit” regardless of intentions.
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