The short answer is that you can do so for the latest backup, but you will lose all previous backup versions.
The way system image backup works is that the latest point in time of the image is always stored as a .vhd file on the target. When the next backup occurs, any changes since the previous backup will be reflected in this .vhd file, and all older versions of data are written off to the "shadow copy storage" area on that target, which is outside of the VHD. During restore, if you choose to restore to an earlier backup, the restore process will stitch together the VHD together with the changed data stored in the shadow copy storage area.
When you move the "Windows Image Backup" folder to another location, only the VHD is moved along with it, but the data written off to the shadow copy storage location does not. Hence while you will preseve the latest version of the backup, the older versions will be lost.
Best way would be to re-backup onto the external drive and then remove previous backups for space.