Either hang them from the trim, or hang them straight up into the vertical wall of that cove.

Definitely don't hang the rod outside the cove. It would look odd. If you were to move the rod off the trim, you could elevate the drapes 4-5 more inches. My main issue is where the drapes currently end, half way to no where. I see that they can't be floor length because of the heating element, so they should end (kiss) the window sill.

Thank you, I realize that now looking at it on the picture.. it definitely looks weird lol

@Jewelisfabulous should I do right above the heating element or just to the window sill?

I would do just to the window sill. Right above the heating element would look like "high water pants". :)

I second the 'just to the window sill'. Pin ( or use tape) one side up to that point and you'll be able to visualize the change when you compare it to the other side.