A sensing system with a high optical Signal Noise Ratio (SNR) of >60 dB, which is based on a tunable fiber ring laser configuration, is proposed for the dynamic strain measurement. An F-P etalon serving as edge filter is used to detect the wavelength shift of the Fiber Bragg Grating (FBG) sensor. Such a demodulation device has the advantage of stability. In addition, in order to improve the resolution for dynamic strain measurement, a modern spectral analyzing algorithm called Music modern spectrum estimation is adopted. The experimental results show that a dynamic strain resolution of 0.1 με/Hz1/2 at 700 Hz is obtained, which is 10 times better in terms of strain resolution compared with conventional FFT method.