I understand you wish to make an external recovery media set, but want to know if it will work with an external HDD.
To make the USB recovery media, you will need a flash drive as an external HDD won't work. The program checks to ensure the media is a flash drive. If the media is not a flash drive, then the program won't install to it. Since the recovery media can be made only once, this is more of a preventative measure as most would be more inclined to use the external HDD for something else and possible preventing the recovery portion not to work.