I have done this but I put another material under the design. Sort of like applique.Satin comes out very nice. I have the towel, thin batting, the material and then sew. I used a wash away topping to hold everything together. At least you now have a towel to experiment on. Good luck!! suzanne
Emb Lib has some explaination about this. Good Luck.
I think only an embossed design would give a better result, although totally opposite: it is flatter than the rest of the towel. Here's one I did as an example.
Miss Veronika has several beautiful embossed alphabets. You will find them In Cute Alphabets, Amazing Designs and Cute Embroidery. They are all her sites. You can purchase memberships for Cute and Amazing but need to purchase the alphabets from Cute Alphabets. I know you will be happy with the results using an embossed alphabet. Just remember to use WSS (water soluable wash away stabilizer on top to keep the loops down while it is being stitched out. It was a good learning experience though, wasn't it!
Think you should use a embossed design. Very nice on towels
Trapunto , would not work on a towel in this application, since you have to stuff the stitching. If the link doesn't work below just use your search engine and search Trapunto.
I'm not sure trapunto is for looped fabric, I have done one on a sweatshirt, it was a trapunto dog design from embroidery library, and a thin padding on the back to give it a quilted look. Not sure you can do that to terry cloth.