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We investigate an optically resonant cavity which is created between a reflecting micro-cantilever and a diffraction grating etched into a silicon waveguide. Changes in cavity resonance, induced by small deflections of the micro-cantilever result in large changes in an optical signal transmitted through the waveguide. An analytical model can predict the cantilever position for maximum and minimum transmission and is confirmed by three-dimensional finite difference time domain (FDTD) simulations. This approach can be used to accurately determine the position of a micro-cantilever with a predicted optimal shot noise limited deflection noise density of 4.1 fm/ Hz.