Yep. As you can see, all three of your valves are wide open (hot, cold and bypass).
Simply turn the bypass valve, (which you have correctly identified) to be perpendicular to the piping and you will be OK.
In fact, you may find that your water is too hot. If you want to adjust the temp down a bit, just play with opening the bypass valve a bit and use trial and error until you get the water temperature that you want.