Why is Cyclodextrin cavity hydrophobic?
Cyclodextrin hydroxyls are the external surface (hydrophilic and hydrogen-bonding).  They circle the larger open end.  The carbon and hindered ether skeleton is internal (hydrophobic).  A cyclodextrin looks like a bonded hollow detergent micelle in water.



Before you believe advertising hype, remember that underivatized cyclodextrins are nephrotoxic, crystallizing upon concentration, probably as the cholesterol endohedral complex.  Look it up. 

Ethanols insert their hydrocarbon tails into the center, then hydrogen bond their polar ends with each other and the rim.