I tried this dummy example:

CMakeLists.txt

cmake_minimum_required( VERSION 2.8 )
project( testcmake )

add_custom_command(
  OUTPUT testcmake.h
  COMMAND xxd -i testcmake.txt testcmake.h
  DEPENDS testcmake.txt
)

add_executable( testcmake testcmake.c testcmake.h )

testcmake.c

#include <stdio.h>
#include "testcmake.h"

int main()
{
    int i;

    for ( i = 0 ; i < testcmake_txt_len ; i++ )
    {
        fputc( testcmake_txt[ i ] , stdout );
    }
}

testcmake.txt

foo
bar
baz

The problem

It fails with:

[...]
xxd: testcmake.txt: No such file or directory
[...]

Adding WORKING_DIRECTORY ${CMAKE_CURRENT_SOURCE_DIR} makes everything works fine but I don't want the output of my custom command appears in my source directory, I want that all the intermediate files remain in the CMake build directory just like any non custom rule.