Hm, okay, good exercise.

Water bulges out from towel as it's being wrung, reflecting the fact that the spaces between towel threads are being compressed. When it stops being wrung, the water goes back into the towel (70% probable).

If wrung sufficiently hard, the water might spray radially outward normal to the longitudinal axis of the towel. But I think surface tension should help keep it near the towel so I rate this as 20% probable.

Remaining 10% to other possibilities.