The "Target cycling" is under "Target Filtering", which AFAIK only available for Game Pad, doesn't work with KB+M. Though I really wish I were wrong.
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Target Cycling is 2 different settings for when you have your weapon is Sheathed and when it is Drawn (the two listings in order). In Keyboard settings, the Z key will toggle these states (the Micro Menu also has an icon of a Sword that will rotate to display what your current state is - Blade down for Sheathed, Blade at an angle upward for Drawn).
Filter Customization is in fact not only available to Game Pad, but it is not pre-mapped for Keyboard. In the keybind menu for Targetting (second tab) the last 4 settings are for the Keyboard shortcuts for Top Left, Bottom Left, Top Right, Bottom Right respectively. You will have to find keys on your keyboard that you feel comfortable placing them in.
Bear in mind:
These filters will only effect the targetting via numpad 4 and 6 (the keyboard soft target keys). You can rebind Tab and Shift+Tab (by default they only cycle Enemies) to the cursor keys in the System tab of the Keybind menu, but bear in mind you may need to set the Confirm button as well (because using the soft target, you will need to confirm the target to change the anchored target - which Tab does by default). Or you could get used to targetting via the numpad, using Tab when you need to flick about for Enemies.