Ok so I tried it. Apparently it works.
After rooting my device and installing proxy droid all traffic (including the traffic generated by applications) was routed through the proxy. However apparently the application that i am trying to analyze does not accept the Fiddler root certificate.
I tried installing the certificate on the device and it no longer produces certificate errors in the browser so it installed correctly. However I think that the application does additional checks against a restricted list of authorities, not taking into consideration the local certificate store.
But good news is that installing proxy droid will route all traffic through the proxy server. This should solve BlackBox's problem.
If you have any thoughts on how to fix the certificate thing let me know. I will try to reverse engineer the smalli code to see if I get any info on how the check is performed.