When the primary link goes down I can still reach 1.1.1.1 on the Mikrotik so the Netwatch rule cannot detect that the ISP1 is down.
You need 2 separate test hosts (eg 1.1.1.1 and 1.1.2.2), and also check with 2 routes that will then resolve as recursive routes only if the check passes on that route.
Have a look at this: http://forum.mikrotik.com/t/advanced-routing-failover-without-scripting/136599/1
It is applicable for this case, but describes the more complex case of load balancing. The failover requested is just a simplified form of load balancing.
Key ingredient is the (brain hurting) concept of “recursive routes”. Recursive routes allow in this case to set a route via the PPoE (GW1) and one via the LTE provider (GW2) in this case
(the routes resolving the recursive route request), and to check which one really works., based on the fact that via that route some Host on Internet is reachable.
If some general available IP address (specificly choosen for just one route) is reachable via the route of GW1 or another IP for the route of GW2 only then that resolving route will be used.
Load balancing or failover, is just based what you do with the availability of the 2 routes. If one has priority ( e.g. smaller distance ) then only that one will be used. The other one only as failover.
If you split traffic priority with the routing-marks, then load balancing is possible.